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ICI\/IH 

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(monograph  les) 


m 


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©1995 


Technical  and  Bibliographic  Notes  /  Notes  technique  et  bibliographiques 


The  Institute  has  attempted  to  obtain  the  best  original 
copy  available  for  filming.  Features  of  this  copy  which 
may  be  bibliograp.iically  unique,  which  may  alter  any  of 
the  images  in  the  reproduction,  or  which  may 
significantly  change  the  usual  method  of  filming  are 
checked  below. 


D 
D 

n 

n 

D 
D 

D 

D 

n 
\7f 


D 


Coloured  covers  / 
Couverture  de  couleur 

Covers  damaged  / 
Couverture  endommagee 

Covers  restored  and/or  laminated  / 
Couverture  restauree  et/ou  pelliculee 

Cover  title  missing  /  Le  titre  de  couverture  manque 

Coloured  maps  /  Cartes  geographiques  en  couleur 

Coloured  ink  (i.e.  other  than  blue  or  black)  / 
Encre  de  couleur  (i.e.  autre  que  bleue  ou  noire) 

Coloured  plates  and/or  illustrations  / 
Planches  et/ou  illustrations  en  couleur 

Bound  with  other  material  / 
Relie  avec  d'autres  documents 

Only  edition  available  / 
Seule  edition  disponible 

Tight  binding  may  cause  shadows  or  distortion 
along  interior  margin  /  La  reliure  serree  peut 
causer  de  I'ombre  ou  de  la  distorsion  le  long  de 
la  marge  interieure. 

Blank  leaves  added  during  restorations  may  appear 
within  the  text.  Whenever  possible,  these  have 
been  omitted  from  filr  ,ing  /  II  se  peut  que  certaines 
pages  blanches  ajoute^s  lors  d'une  restauration 
apparaissent  dans  le  texte,  mais,  lorsque  cela  ^tait 
possible,  ces  pages  n'ont  pas  ete  filmees. 


L'institut  a  microfilme  le  meilleur  examplaire  qu'il  lui  a 
ete  possible  de  se  procurer.  Les  details  de  cet  exem- 
plaire  qui  r^nt  peut-etre  uniques  du  point  de  vue  bibli- 
ographique,  qui  peuvent  modifier  une  image  reproduite, 
ou  qui  peuvent  exiger  une  modifications  dans  la  meth- 
ode  normale  de  filmage  sont  indiques  ci-dessous. 

I     I      Coloured  pages  /  Pages  de  couleur 

I     I      Pages  damaged  /  Pages  endommagees 


n 


Pages  restored  and/or  laminated  / 
Pages  restaurees  et/ou  pelliculees 


[7|      Pages  discoloured,  stained  or  foxed  / 

Pages  decolorees,  tachetees  ou  piquee;^ 

I     I      Pages  detached/ Pages  detachees 

ly/T      Showthrough   Transparence 

I     I      Quality  of  print  varies  / 

' — '      Qualite  inegale  de  I'impression 

I     I      Includes  supplementary  material  / 

Comprend  du  materiel  supplementaire 

I  I  Pages  wholly  or  partially  obscured  by  errata 
slips,  tissues,  etc.,  have  been  refilmed  to 
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a  nouveau  de  fafon  a  obtenir  la  mellleure 
image  possible. 

I  I  Opposing  pages  with  varying  colouration  or 
' — '  discolouratlons  are  filmed  twice  to  ensure  the 
best  possible  image  /  Les  pages  s'opposant 
ayant  des  colorations  variatiles  ou  des  decol- 
orations sont  filmees  deux  fois  afin  d'obtenir  la 
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0 


Additional  comments  / 
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Various  pagings. 


This  Item  is  filmed  at  the  reduction  ratio  checked  below/ 

Ce  document  est  filme  au  taux  de  reduction  indique  ci-dessous. 

lOX  14X  18X 


D 


Th«  copy  filmad  har*  hu  baan  raproduead  thanks 
to  tha  ganaroiity  of: 

National  Library  of  Canada 


L'axamplaira  fllmA  fut  raproduit  grlca  i  li 
ginaroiit*  da: 

Bibliotheque  nationale  du  Canada 


Tha  imagas  appaaring  hara  ara  tha  bast  quality 
poatibia  conaidaring  tha  condition  and  lagibility 
of  tha  original  copy  and  in  kaaping  with  tha 
filming  contract  apaciflcationa. 


Lat  imagai  luivantat  ont  tta  raproduitaa  avac  la 
plua  grand  loin.  eompta  tanu  da  la  condition  at 
da  la  nattata  da  Taxamplaira  film*,  at  an 
conformity  avac  laa  conditions  du  contrat  da 
fllmaga. 


Original  capiat  in  printad  papar  eovara  ara  fllmod 
baginning  with  tha  front  covar  and  anding  on 
tha  last  paga  with  a  printad  or  illuatratad  Impraa- 
(ion.  or  tha  back  covar  whan  appropriata.  All 
othar  original  copiaa  ara  filmad  baginning  on  tha 
first  paga  with  a  printad  or  illuatratad  impraa- 
sion,  and  andiiig  on  tha  last  paga  with  a  printad 
or  illuatratad  impraaaion. 


Las  aiamplalras  originaux  dont  la  couvartura  an 
papiar  ast  Imprimaa  sont  film^s  »n  eemmancant 
par  la  pramiar  plat  at  an  tarminant  soit  par  la 
darniara  paga  qui  comporta  una  amprainta 
d'Impraaalon  ou  d'illuatratlon.  soit  par  la  lacond 
plat,  salon  la  cas.  Tous  lat  autras  axamplairas 
originaux  sont  fllmH  an  eommancant  par  la 
pramiAra  paga  qui  comporta  una  amprainta 
d'impraasion  ou  d'illuatration  at  »n  tarminant  par 
ia  darnitra  paga  qui  comporta  una  taila 
amprainta. 


Tha  laat  racordad  frama  on  aach  microficha 
shall  contain  tha  symbol  — ^  (moaning  "CON- 
TINUED"), or  tha  symbol  ▼  Imaaning  "END"), 
whichavar  applias. 


Un  daa  symbolaa  suivants  apparaitra  sur  la 
darniira  imaga  da  chaqua  microficha.  salon  la 
cas:  la  symboia  '— •■  signifia  "A  SUIVRE '.  la 
symbols  V  signifia  "FIN". 


Mapa.  platas.  charts,  ate,  may  ba  filmad  at 
diffarant  raduction  ratios.  Thosa  too  larga  to  ba 
antiraly  includad  in  ona  axposura  ara  filmad 
baginning  in  tha  uppar  laft  hand  eornar,  laft  to 
right  and  top  to  bottom,  as  many  framas  aa 
raquirad.  Tha  following  diagrams  iilustrata  tha 
mathod: 


Lat  cartas,  planchas,  tablaaux,  ate,  pauvant  itra 
filmte  1  das  taux  da  reduction  difftrants. 
Lorsqua  la  documant  ast  trop  grand  pour  itra 
raproduit  an  un  saul  clichi,  il  ast  filma  1  partir 
da  I'angla  suptriaur  gaucha,  da  gaucha  i  droita. 
at  da  haut  an  bas,  9n  pranant  la  nombra 
d'imagaa  ntcassaira.  Las  di^grammas  suivants 
lllustrant  la  mtthoda. 


1  2  3 


1 

2 

3 

4 

5 

6 

MIOOCOrY   HESOIUTION   IBT   CHAIT 

(ANSI  ond  ISO  TEST  CHAST  No.  2| 


'LIED  IM^GE     li 

1^  iti    Main   Street 

RDChesttr,    New   Tofi,         t*609        USA 
I '15)    ta;   ■   OJOO- Phone 
(716)  286  -   5989  -Fa- 


Modern  Business 

CANADIAN  EDITION 

A  SERIES  OF   EIGHTEEN    TEXTS,   ESPECIALLY  PREPARED 

FC      THE  ALEXANDER   HAMILTON   INSTITUTE  CODRSE  IN 

ACCOUNTS,  FINANCE  AND  MANAGEMENT 

EDITED  By 

JOSEPH    FRENCH  JOHNSON 


nPAN,   NEW  TURK  l-NiVEIlHITT 


■■    IF  rcMMKRCE.  AQCOVtrrn  AXn  riNANCI 
NEW  YUHK  Cirv 


^"'^-  AMor 

APPLIED  ECONOMICS j^„,,  mavok 

ORGANIZATION  AND  MANAGEMENT  Lee  Gallowat 
**^LL'NG R,S.B„T.EB 

CREDITS LEEGAtLOWAT 

™-^I^"C S.  J.  McLean 

ADVERTISING Lee  Ga.lowat 

BUSINESS  CORRESPONDENCE  G,  B,  Hotchkiss 

ACCOUNTING  PRACTICE  .     .     .     .  |  I-'^o  GREENDLiNaEK 

^  E.  \V.  Whiuht 
/William  H.  Locaii 
I  Fred  W.  Field 
TEarl  Dean  Howard 

I  W.    \V.    SWANSON 

E.  L.  Stewart  Patterson 
f  Franklin  Escheh 
I  E.  L.  Stewart  Patterson 
f  Thomas  Conwjt 
^  Albert  Atwooi: 
1  Fred  W.  Field 

INSURANCE /Edward  R,  Hahdt 

I  Fred  W.  Field 
REAL  ESTATE  /  Walter  Lindni  i 

■  \  E.  W.  Wright 

AUDITING Setmohr  Walton 

COST  ACCOUNTS Stephen  W.  Gilman 

COMMERCIAL  LAW Walter  S.  Johnson- 


CORPORATION  FINANCE 
MONEY  AND  BANKING 
BANKING  PRACTICE     . 
FOREIGN  EXCHANGE 


INVESTMENT  AND  SPECULATION 


Applied 
Economics 


A  PRACTICAL  EXPOSITION  OF  THE 
SCIENCE  OF  BUSINESS  WITH  IU.USTRA. 
TIONS     FROM     ACTUAL     EXPERIENCE 


BY 

JAMES    MAYOR 

PROFEMOR  OF  POLITICAL  ECONOMY  IN  THE  WnVBK- 
S^  o»JPS?,2T°'  AUTHOR  OF  "THE  ENCUSH  RAIL- 
)JL  X.'V^7^  QUESTION',  REPORT  TO  THE  GOVERNMENT 
OF  CANADA  ON  IMMIGRATION!  AND  VARIOUS  OTHER 
BOOKS  AND  REPORTS 


Modern  Business 

Canadian  Edition 

Volume  I 


ALEXANDER  HAMILTON  INSTITUTE 
NEW  YORK 


ly 


hr 


r-}'i 


Wi4- 


CoFTRtUIIT,   I!MI.  BT 

ALEXANDER  HAMILTON   INSTITUTE 


CoPTBiQHT  IN  Great   Rhitain,    !914.  at 
ALEXANDER  HAMILTON   INSTITUTK 


EDITORS  PREFACE 

The  Mclern  Business  Course  an.l  Service  is  clesiRnerl 
for  wide-awake  business  men.  Its  aim  is  to  uppH^S 
e..t.fic  methods  of  thought  in  the  diseussion  of  the  vari- 

[Jmted  States  some  years  ago.  arul  has  heen  most  favor- 
ably received  by  the  business  public.  It  has  been  revised 
from  t,  ne  to  t.me  and  is  ke,-'  p  to  date  by  the  Staff 
of  the  Alexander  Hamilton  institute.  The  Course  is 
now  rewritten  for  the  use  of  Canadian  readers.  Three 
of  the  texts  m  this  Cana.lian  revision  are  entirely 
new.  Every  other  book  and  pamphlet  has  either  been 
thoroughly  revised  or  is  original  matter  written  by  some 
authority  who  ,s  familiar  at  first  hand  with  Canadian 

bmation  of  the  accumulated  business  knowledge  an,' 
business  experience  of  both  Canada  and  the  United 

r„!!"  ""'?  c°^  ■'''''  ■'  '^  ^"''^  "^  ^^^  ^I"'!""  Business 
Course  and  Service.  It  should  be  clearly  understood  that 
the  texts  are  not  designed  to  cover  thoroughly  and  in 
detail  every  point  that  ought  to  be  included  in  a  stu.lv 
of  present-day  business.  They  do  contain  a  treatment 
of  all  essen  ml  principles  of  the  growing  science  of  busi- 
ness. Applications  of  these  principles  will  be  found  in 
tlie  Talks.  Lectures,  Problems  and  Service 


KCONOMICS 


It  is  not  prncticahic  to  (lisciiss  the  entire  Course  ami 
Service  in  this  lirief  introdiiftion.  I  sliall  contine  my- 
self to  n  sinnniury  review  of  tlie  twelve  text  volumes. 

While  tile  twilve  volumes  might  well  he  regarded  us 
n  unit,  nevertheless  each  volume  is  complete  in  itself 
and  may  lie  read  independently  of  the  rtst.  The  sub- 
ject of  "Economics"  the  reader  will  find  is  the  key- 
stone of  the  business  arch.  A  man  who  does  not  under- 
stand the  laws  that  govern  all  business  can  never  have 
a  thorough  grasp  of  any  single  business.  The  subject 
underlies  business  callings  just  as  mathematics  underlies 
engineering  vocations.  The  i)urpose  of  the  volume  on 
"Economics"  is  to  bring  In'fore  the  reader  a  clear  idea 
of  the  business  problems  which  economists  have  sought 
to  solve  and  of  the  j)rinci])les  they  have  for  the  most 
part  agreed  upon.  The  author,  Professor  James  Mavor, 
of  the  University  of  Toronto,  is  a  well-known  economist. 

The  volume  on  "Orga.iization  and  Management"  is 
the  most  comprehensive  text  on  the  subject  that  has 
3o  far  appeared.  In  the  United  States  and  Canada 
much  progress  is  l)eing  made  in  the  establishment  of  cor- 
rect principles  in  this  field.  The  subject  is  engaging  the 
attention  of  progressive  business  men  throughout  the 
world.  The  reader  will,  therefore,  undoubtedly  welcome 
the  concrete  discussion  of  the  subject  by  Professor  Gallo- 
way. 

Volume  III,  "Selling,  Credits  and  Traffic,"  coveis  the 
three  essential  steps  in  the  process  .)f  marketing  goods. 
The  original  treatise  on  "Selling,"  by  Professor  Ralph 
Starr  Butler,  of  the  University  of  Wisconsin,  has  re- 
quired only  slight  alteration  for  Canadian  use.  The 
treatise  on  "Credits,"  by  Professor  Galloway,  has  been 
revised  by  Dr.  Swanson,  of  Queen's  University,  'ihe 
treatise  on  "Traffic"  is  the  work  of  the  Hon.  Simon 


KDITOR-S    PHKFACE  i\\ 

J.  McLean  of  the  Hoanl  .,f  Railway  C'omnrsMoners  „f 
lanm.u  a,.<l  „  an  in.,..,rtunt  contrihution  to  the  literu- 
ture  or  hu.siiic.s.s. 

vtrtising     ha,   proved    of   particular   interest    to   our 

uhsenlH^rs  .n  the   Unit.  I   state.,.     B,«i„e,s  men  ir 

Ca„a.m  W.11  undoubtedly  receive  this  volume  with  a  sin  - 

lar  degree  of  appreciation.  es,M^.ially  as  the  text  on  Ad- 

wllh'rfn  r  T''""^  ''^'  "  """"  ""oroughly  familiar 
with  Canadian  advertismg  practice.  Mr.  Hotchkiss' 
work  on  Business  Corresjwndence  treats  the  subject  in 
a  scentific,  analytical  manner.  The  present  tendency 
«  to  eliminate  much  of  the  "oI,l.  formal  tone  and  to  let 
more  of  the  writers  perso  lity  enter  into  his  business 
correspondence  There  is  much  for  any  business  man 
to  learn  from  this  volume. 
Two  volumes  are  devoted  to  Accounti   -.    Volume  V 

Drinotr^'f  ?f  '^''"-''  "'"'  ^"''''''''  •"'''dates  the' 
principles  of  the  subject  and  gives  to  the  reader  the 
gindance  he  needs  in  training  himself  for  the  solution 
of  accounting  problems.  The  discussion  of  bookkeep- 
ing principles,  of  partnership  and  corporation  forms  and 
accounts  and  of  accounting  for  intangible  expenditure 
and  assets  will  be  found  of  particular  interest.  I  desire 
to  express  my  sincere  appreciation  of  the  helpfulness  of 

E.  W.  Wright,  of  the  Montreal  bar.  in  making  sug- 
g..-stions  as  to  the  revision  of  this  volume  for  Canadian 
readers. 

Volume  XI  also  is  devoted  to  accounting.  The  first 
part  covers  the  important  work  of  the  auditor,  stating 
the  principles  which  determine  completeness  in  audits 
and  giving  concrete  illustrations  of  the  proper  method 
to  pursue  in  the  audit  of  different  businesses.    The  im- 


'"  ECOXOAIirS 

portant  subject  of  costs,  which  is  treated  in  the  second 
half  of  the  volume,  cannot  be  studied  too  closely  by 
anyone  even  remotely  interested  in  manufacturing— and 
this  includes  bankers,  wholesalers,  accountants,  and 
many  others. 

Volume  VI,  on  "Corporation  Finance,"  is  used  as  text 
in  most  of  the  universities  in  the  United  States  where 
business  courses  are  given.  The  description  of  sources 
from  whicii  corporations  obtain  their  funds  and  of  the 
methods  they  employ,  is  of  decided  value  to  any  man  in 
business,  no  matter  what  his  vocation  or  position  may 
be.  The  book  is  full  of  practical  suggestions  and  can  be 
understood  by  men  who  have  had  no  previous  training 
in  finance.  It  has  been  carefully  revised  by  Mr.  I  led 
W.  Field,  Editor  of  The  Monetary  Times,  who  is  one 
of  the  foremost  authorities  on  the  subject  in  Canada. 

Volume  VII,  on  "Money  and  Banking,"  deals  with 
the  fundamental  principles  underlying  financial  op- 
erations. Professor  \V.  W.  Swanson,  of  Queen's  Uni- 
versity, treats  the  Canadian  phases  of  the  subject. 

Volume  VIII,  on  "Banking  Practice  and  Foreign 
Exchange,"  most  of  which  bas  been  written  by  Mr.  E.  K. 
Stewart-Patterson,  of  the  Canadian  Bank  of  Commerce, 
is  the  only  book  jthat  shows  the  inner  mechanism  of  the 
Canadian  bank.  The  banking  act,  the  branch  system, 
methods  of  organization,  Recounting  and  control  are  all 
thoroughly  discussed.  This  volume  will  prove  helpful 
not  only  to  the  Canadian  banker,  but  to  any  business 
man  who  has  any  dealings  whatever  with  a  Canadian 
bank. 

Volume  IX,  on  "Investment  and  Speculation,"  is  de- 
signed not  only  for  the  benefit  of  men  employed  in  stock 
and  bond  houses,  but  for  all  business  men.  Obviously, 
the  information  is  especially  valuable  to  those  who  have 
securities  to  dispose  of.     The  book  describes  stock  ex- 


EDITOIl'S    PKKI'ACK  y 

change  operations  and  explains  liow  to  value,  and  how 
to  buy  and  sell,  securities.  The  Canadian  phases  of  this 
siiliject  have  been  written  by  Mr.  Field. 

Volume  X,  treating  of  "Insurance  and  Real  Estate  " 
and  Volume  XII,  on  "Commercial  Law,"  will  prove 
of  great  practical  help  to  young  men,  as  well  as  to  execu- 
tives who  are  already  handling  problems  in  these  fields. 
Keal  estate  is  becoming  more  and  more  of  a  factor  in 
the  development  of  Canadian  resources.    It  requires  the 
attention  of  all  progressive  men.     The  text  on  this 
subject   has   been   carefully  revised   by   Jlr    E     W 
Wright,  of  the  xAIontreal  bar.     Commercial  law,  ob- 
viously, enters  into  every  business  transaction.    The  vol- 
ume on  this  subject  by  Mr.  Walter  S.  Johnson,  of  the 
Montreal  bar,  is  designed  both  to  give  a  broad  under- 
standing of  the  common  law  and  to  protect  business 
men  against  common,  and  often  costly,  blunders 

The  editor  has  left  every  author  complete  liberty  in 
the  presentation  of  opinions  and  conclusions.  Each 
author  IS  alone  responsible  for  the  views  he  expresses. 
Here  and  there  topics  are  treated  in  more  than  one 
volume.  Some  apparent  duplication  is  necessary  in 
order  to  make  each  subject  comprehensive.  The  reader 
IS  advised,  however,  to  read  botii  discussions  of  the  same 
subject,  for  in  one  text  it  will  be  dealt  with  more  fully 
than  m  another,  where  it  may  be  referred  to  merely  for 
the  sake  of  completeness. 


Joseph  Fhexch  Johnson. 


New  York  Univemty. 


1 . , 


TABLE  OF  CONTENTS 


PART  I: PRODUCTION 


SECTION 
1. 

2. 
S. 
4. 
5. 
6. 
7. 

8. 

9. 

10. 


CHAPTER    I 
INTRODUCTION 

■Economics  as  a  Science j 

The  Social  Aspect i 

Why  a  Study  of  Economics  is  Important     ....  g 

The  Governmental  Aspect ^ 

The  Four  Economic   Processes g 

Economic  Processes  Depend  Upon  Certain  Conditions  6 
Social  Stability  Sometimes  Disturbed  with  Interior  Ad- 
vantage         ~ 

The  Final  Purpose g 

The  National  Dividend g 

Private   Luxury n 


CHAPTER    II 
PRIMARY  PHASES   OF   PRODUCTION 

11.  Detail  and  Mass  Production jl 

12.  The  Effect  on  a  Nation  as  a  Whole jS 

1 S.     Simple  Form  of  Production j  -j 

14.  Raw   Material j^ 

15.  Labor .r 

16.  Complex  Production jg 

17.  Supplementary  Requisites 17 

18.  Who  Owns  the  Finished  Product? 17 

19-     Primitive  Causes  of  Disputes Ig 

vii 


■  ECTION 

'20. 
21. 
22. 
23. 
2*. 
23. 
26. 
27. 
28. 


ECOXOAIICS 

CHAPTER    III 

FACTOHS   OF   PRODUCTION 

Three  Divisions  of  Labor 'g" 

Land  and   Capital 

Fixed  and  Circulating  Capital "l 

Sources  of  Capital .22 

Functions  in  Complex  Production 2:i 

Law  of  Increasing  Returns 21. 

Reasons  for  Industrial  Combinations  ......      23 

Conditions  Wliicli  Must  Be  Present .26 

The  Law  of  Diminishing  Returns !     26 


29. 
30. 
31. 
32. 
38. 
Si. 
35. 
36. 


CHAPTER    IV 
EFFECTS   OF   TRANSPORTATION 

Transportation  as  an  Incident  in   Production      ...  29 

Applied  to  Manufacturing  Industries 29 

Is  Transportation  Wasteful.' 31 

Methods  of  Transportation 31 

Opening  New  Markets 34 

Effects  on  Labor  and  Capital g. 

Effect  on  Land 

Effect  on  Rents  .      .  «. 
35 


37. 

nn. 
39. 

40. 
41. 
42. 
43. 
44. 
4.'). 
46. 
47. 


CHAPTER    V 
FIRST   STAGE    IN   PRODUCTION 

Stages  of  the  Process  of  Production 37 

Exploitation   or   Extractive  Stage  of  Production      .      '.  .ss 

Agriculture  and  Exploitative  Industry ^q 

Passing  of  Compulsory  Cultivatio jj, 

Beginning  of   Commercial   Cultivation      .....  11 

Tribal  Land  Ownership .„ 

Objection  to  Commercial  Land  Ownership     ....  41 

Advantages  of  Commercial  Land  Ownership  .      .      .       '  44 

Decline  of  European  Smal'  Farmer 45 

Return  of  the   Small  Cultivator    ......      .  4,) 

Land  Holding  for  Social  and  Po'itical  Distinction      '.      '.  47 


CONTENTS  ix 

•ccnON 

48.  Land  Ownership  on   European  Continent     ....  48 

49.  Cultivation   of  Wheat 4g 

50.  In  Europe  and  South  America 50 

51.  In  the  United  States  and  Canada 51 

52.  Specialist  Wheat  Farmers 52 

CHAPTER    VI 

AGRICl'LTURE 

53.  Immobility  of  Agricultural   Capital 53 

54.  Agricultural  Capital  and  Credit 5j 

55.  Farming  a  Hazardous  Business m 

56.  Farm  Loans 5g 

57.  The  Farmer  Inevitably  a  Borrower 58 

58.  Evil  of  Usurious  Rates 58 

59.  Speculation  the  Result  of  Easy  Borrowing  Facilities      .  5y 

60.  Farm  Mortgages (jn 

61.  Situation  in  Canadian  Northwest .61 

62.  Crops  as  Security gg 

63.  Co-operative   Agricultural    Credit .63 

64.  Usury   Gradually   Vanishing g.j 

65.  Co-operative  Loan  Societies  Less   Necessary  than   For- 

■""'y 66 

66.  Marketing  Farm  Produce g^ 

67.  Establishing  Wheat  Prices gg 

68.  Establishing  Grade  and  Quality (iy 

69.  From  Elevator  to  Market 70 

70.  Financing  Crop  Movements 7 1 

71.  Wheat  Market  Highly  Organized 72 

72.  Meat  Production  as  an  Extractive  Industry  ....  73 


CHAPTER    VII 

MINING 

73.  Gold  Mining 75 

74.  Two  Kinds  of  Gold  Deposits 75 

75.  Gold  Mining  in  British  Columbia 77 

76.  Silver    Mining 77 

77.  Decline  in  Value  of  Silver 78 


^  ECONOMICS 

■  ICTtOM 

78.     Attempt  to  Sustain  the  Price  of  Silver  in  the  United 

States         ,_- 

79-     Effect  of  Silver  Legislation j^ 

80.  Mining  Camps  Tend  to  Raise    Prices go 

81.  Copper  Mining „,, 

82.  Nickel  Mining 81 

85.  Iron  Mining .. 

84.     Iron  Industry  in  United  States 82 

83.  More    Economical    Handling gg 

86.  Iron  Mining  in  Canada ga 

87.  Coal  Mining 84 

88.  Coal  Mines  Subject  to  Law  of  Diminishing  Returns    .      .  BH 

89.  Guarding  Against  Law  of  Diminishing  Returns   .      .      .  gs 

90.  Waste  in  American  Coal  Mining gg 

91.  Labor  in  Exploitative  Industries 87 


93. 

9*. 
95. 
96. 
97. 
98. 
99. 
loo. 


CHAPTER    VIII 
MANUFACTURING   STAGE   OP    PRODUCTION 

Characteristics  of  Complex  Production go 

Specialization  in  Manufacturing gg 

Localization  of  Industries  ....             ....  90 

Factors  in  Locating  an  Industry nj 

Effect  of  Male  and  Female  Labor  upon  Location  ...  92 

Division  of  Labor  and  Over-production 93 

Over-production  of  Articles  of  Future  Usefulness      .      .  ()t 

Over-pr  duction  of  Railways gj 

Over-production  of  Crops gg 


101. 
102. 
lOS. 
104. 
10,5. 
106. 
107. 


CHAPTER    IX 
GETTING   G0OD.S   TO    MARKET 

Marketing  a  Phase  of  Production 07 

Circulation  of  Capital  an  Important  Factor   ....  98 

Injurious   Bargaining ng 

Advertising  a  Factor  in  Production gp 

Wholesale  and  Retail  Trade jq\ 

Will  the  Middleman  be  Eliminated.' ]02 

Seasonal  Trades jOj 


CONTKNTS 


PART   II:   EXCHANGE 

CHAPTER    I 
BARTER  AND  MONEY 

McnoK  „„, 

108.  Barter  Economy lot 

109.  Examples  of  Primitive  Barter 103 

110.  The  Origins  of  Money 108 

111.  Gold  and  Silver  as  Money 108 

112.  Money  a  Standard  of  Value 110 


113. 
114. 
115. 
116. 
117. 
118. 
119. 
120. 
121. 
122. 
123. 


134. 
12S. 
126. 
127. 
128. 
129. 
l.SO. 
131. 


CHAPTER    11 
tfTILITV    AND    VALUE 

Value  Based  on  Utility  or  Exchangeability  .      .      .      .112 

Intense  Desire  and  Urgent  Demand 114 

Various  Degrees  of  Desire II4 

Diminishing  Usefulness 115 

Disutility 115 

Quality  of  Commodity  and  Character  of  Need  .  .116 

Value  Dependent  upon  Place  or  Condition      .      .      .      .117 

Exchange  Value Hg 

Effective   Demand >    , 

Supply 1  p 

The  Law  of  Substitution 120 

CHAPTER    III 

MARKETS 

Origin  of  Local  Markets 1 22 

Market  of  Nijni  Novgorod 122 

Protecting  Market  Routes 123 

Some  Well-known  Market  Places J? j 

Operation  in  a  Typical  Local  Market 2t 

Market  in  a  General  Sense 126 

How  to  Approach  Study  of '•  The  Market  "  .      .  .127 

Supply  and  Demand  Illustrated 128 


"'  KCONOAUCS 

152.  How  Pries  nrr  Estnhlisliid **" 

153.  External  InAueiKCK  upon  Mnrki't !  ISO 

CHAl'TKR    IV 
(■KICKS 

131..     A  "  Fnir   ExolinnKc " ,„„ 

l.t/i.     Customnry    Pricrs    .      ,            ....  '      "    ISI 

136.  Money  iis  a  Stnndnrd  of  Vnluc     .      .      .  '                jgj 

137.  Quantity  of  Gold  and  .Silvir  in  FIxistciicc      .  .      .      .    isr, 

138.  Nntioniil    Afonet.ary    Laws ISf 

13.9.     Effect  of  Gold  and  Silver  Values  upon  Prices  .      .      .137 

140.     Bimctal.sm  a  Cure.' !  1S8 

CHAPTER    V 
SO.MF.    FACTOR.S   THAT   AFFECT    PRICKS 

HI.  Climatic   Variations        ..... 

148.  Effect  of  War  on  PrVes    ■.....,'    ,.u 

143.  Effect  of  Political  ^^lections     .......  142 

144.  Changes  in   Production 143 

145.  Variation   in   Relations  of  Commodities    .....    14,5 

146.  Appued  to   Metals '    j^g 

147.  Changes   in   Consumption ,40 

148.  Growth  of  Population  in  Urban  Centers  .      .      .      .      .148 

149.  Causes  for  Movements  of  Pojiidation  .      .  140 

150.  Effect  on    Prices .].■>] 

151.  Changes  in  Standard  of  Comfort jjj 

152.  Changes   of  Fashion ,53 

CHAPTER    VI 
EFFECT  OF  COMPETITION  AND  MONOPOLY  I'PON  PRICES 

153.  Competition         

154.  Monopoly ,.~ 

155.  Monopoly   Prices ,.. 

156.  Government   Monopolies ,-7 

157.  Monopolies  Subject  to  Law  of  Substitution   .      .      .      .  ijg 

158.  Practical   Effect  of  a  Typical  Case ,59 


CONTENTS 


m 


150. 

i6n. 
I6l. 
i63. 
J63. 
J6i. 
16:.. 

Iti6. 


VAOI 

Quasi-monopolici IgO 

Are  Monopoly  Prices  Excessive? )go 

The  Situation  in  the  United  States 161 

Land   Monopoly Ig^ 

I'luctuntion  of  Land  Prices Igg 

Competition  in  Land  Selling jg.| 

Rates  of  Interest  Affect  Land  Prices 16J 

Changes  in  Geographical   Relations Ig7 


Kir. 

lliB. 
Hi!). 
170. 
171. 
172. 
173. 
I7». 
173. 
176. 
177. 
178. 
179. 
180. 


CHAPTER    VII 
MONEY  AND   CUEDIT   IN   RELATION  TO  PRICES 

Expansion  and  Contraction  of  Credit 170 

Effect  of  Quantity  of  Money  in  Circulation  .  .171 

Periodical   Payments I71 

Settlement  of  Bank  Balances 172 

Gold  Required  for  International  Trade 173 

Money  in  Circulation  Offsets  Prices  Through  Credit      .    17+ 

The  Panic  of  1907 173 

Fiduciary  Currency j^g 

Paper   Money ]»■- 

An   Hypothetical   Case 173 

Fiduciary  Currency  in  Internationa]  Trade   .  .179 

Money  and  Credit  Combines  Influence  Prices      .      .      .    "80 

Bank  Reserves jgi 

Importance  of  Elastic  Currency  System 183 


CHAPTER    VIII 
EFFECT   OF   LEGISLATION   ON    PRICES 

181.  Changes  in  Monetary   Law jgj 

182.  Duties !      '  18S 

183.  Who  Pays  the  Tax?     How  to  Test I87 

184.  Speculation  and  Prices jgq 

185.  Cornering jgg 

186.  Regulation  of  Price  Fluctuations  .'....  jgg 

187.  Cost  of  Living .  igo 

188.  Trade   Cytles 198 


ECONOMICS 


PART    III:    DISTRIBUTION 


•Bcnow 

189. 

190. 

191. 

192- 

193. 

191. 

193. 

196. 


CHAPTER    I 
PKODLKMS  OF  DISTRIBUTION 

SiKnificnnrc  of  Distribution 197 

Difficalty  of  Establishing  nn  Ideal  System   ....  199 

Tlie    Present    System SOO 

Economic    Equality *01 

Analysis  of  Distributive  Process 80* 

Guilds «<" 

Beginning  of  Unrestricted  Trade S04 

Competition  the  Result *0* 


197. 
198. 
199. 
200. 
201. 
202. 
20.^. 
201. 
205. 


CHAPTER    II 

PROCESS  or   DISTRIBUTION 

Factors  of  Production SOS 

Productive  Industries  Classified S08 

Large  Corporntions S'O 

Effect  of  Large  Enterprises <1S 

Employer's  Position  in  Process  of  Distribution    .      .      .  21S 
How   Result  of   Production  is   Distributed    .      .      .      .214 

Deficiency  or  Surplus 21* 

Employer's  Double  Function 216 

Influence  of  Supply  and  Demand !l6 


206. 
207. 
208. 
209. 
210. 
211. 


CHAPTER    III 

PROFIT   AND  WAGES 

Source  of  Profit 219 

How  is  Profit  Brought  About.' 220 

Profit  Distribution  in  Joint  Stock  Company.      .      .      .221 

Employers'   Associations 221 

Superintending  Labor 222 

Salaries 2*^ 


CON'IKNTS 


IV 


■Jli.  KdiiMlion  of  Siip<Ti   ...idiriif  Lnborrn "/J 

•J  1 3.  Cln»»is  of   Mnniinl   I.almri  r» M6 

i'll.  L'niriirm  Win   « 207 

•'IS.  Old    A^e    PriKlnnii j^g 

•-'16.  Lalior  Or^nniiintions ,„,. 

^17.  Difficulty  of  Triin«|MirliMB  Labor   .      ......  ai) 

i!l8.  Labor  Cannot  Be  StortU .  gS! 


■-'19. 
ii.'O. 
2.'1. 
S'-i2. 

as. 

S'H. 

'■i-26. 

'.",>7. 
2-'8. 

229. 
2.10. 
2.')I. 
233. 


CHAPTER    IV 

HATK    OF    WAGES 

Value  of  Products  and  \'nluf  of  Wngvn j.iS 

Nominal  and  Real  Wagea ocu 

Kffieiency  of   Laborer 00, 

.Marginal    WnRi-s .  gs6 

Demand  and  Supply  Pricei  of  Labor '  js; 

LalK>r    Reserves ,„„ 

Effect  of  I'opulation ^g,. 

Other  Influences  on  Labor  Reserves ^W 

Minimum  and  Maximum  Wages gH 

Labor  Not  S„le  Determining  Factor  in  Value  of  Prod- 

."''' 2i.f 

Why  Distribution  is  Njt  Based  upon  Product      .             .  24t 

Supporting  Laborer  During  Period  of  Production      .      .  21.1 

Voluntary   Association jjg 

Advantages  of  Modern  System 217 


CHAPTER    V 
PRACTICAL   LABOR    PROBLEMS 

233.     Labor    Combinations 040 

231.     Change  in  Labor  Union  v  ontrol   .      .  o.n 

ass.     Strikes ''''251 

236.  Strike   Failures gjg 

237.  Collective   Bargaining 2'>2 

238.  Economic  Effects  of  Trade  Unionism 25S 

239.  Trade  Unionism  in  United  States 25j 

240.  Trade  Unionism  in  Canada 2j5 


xvi 


KCOXOMICS 


itt. 

818. 
SU. 
S4S. 
846. 
847. 
848. 


Intcrnalioniil  Trmlr  fnionn 
"  Cliiwd  '•  and  "  Ojicn  Sliop  ' 
Womnn'ii  I.aUir  .... 
Voluntary    .Minimum    Wnge% 
Statutory    .Minimum    W'agra 
Statutory   ^rnaimum   Wagea 
Conciliation  and  Arliitrntlon      . 
Trade  Unioniam  and  Kcunomic  Theory 


,  83d 

9117 
8.17 
85R 
8(i() 
8f>4 
8(j< 
863 


840. 

8.10. 
8.1). 
2.14. 
8.1S. 
234. 
233. 
2.16. 
237. 
i!38. 


CHAPTER    VI 
CAPITAL   AND   INTEREST 

History  of  Intcrmt - 

Early  Theoric!.  of  Intircst  ...  „^ 

Current    Theory _' *''" 

Market  Rate  of  Interest    .      .      .      .      ."      .      .'      '      '  g^^ 

Four  Divisions  of  .Money  Market  .....''  ^70 

Influcnec  of  Monetary  Combinations   ...  072 

Function  of  Capital ■  S'H 

How  Capital  Cornea  into  Play  .      .      .      .                   '      '  gl. 
Hallway  Construction  in  United  States          '      •      '      • 

Effect  in   Europe    .      .                                   '      '            '  „-, 

•^                 277 


CHAPTER   VII 
THE  LANDOWNER'S  SHARE 

S59.  Value  of  Land  Depends  upon  Rent  .  »>„ 

260.  Origin  of  Rent "' 

261.  Lond  as  a  Commodity  .... 

262.  Similarity  to  OtI.cr  Productive  Enternrisej      .      '      '      '   itl 

263.  Lond  Policy  in  United  States  ,-.nd  Can  ida  asi 

264.  Increase  of  Land   Prices    .                                           '      '   oa' 
263.  Who  Bene:?ts?    ....  ' 

266.  Theory  of  Rent  .      .  ^* ' 

267.  Rent  as  Surplus '      ' 

268.  ••  Surplus  "  Theory  \„t  Always  Applicable  .'      '      '      '   ggy 
26 J.  General  Aprlication  of  the  Term  Rent     .....   ggS 


CONTKNTS 


ivii 


PART   IV:    CONSUMPTION 

CHAPTER    I 

CONSUMPTIOf    FOR  SOCIAL  USB 

«T0.     CUMlflcaUon  of  Con.nnipllon  ""' 

871.     N«tion«I  Coniumplion  **» 

«7».     VoIunUry  Con.umption  for  S«l„i  l',c   '.      '.      '.      [      '  f * 

CHAPTER    /I 
CONSUMPTION  FOR  pkhsoNAL   USE 
S7S.     Perional  Rcquirtments 
«76.     Flood        ...  i'.)3 

877.  Clothing        .      .' 890 

878.  Shelter     .      .      . 898 

879.  Philnnthropic  Housing  Kxperiment.  in  !• '^^ 

880.  Typical    He,„It,  *     '■■'""•"■•■t-  m  I  uro,«  .      .      .3,,, 

881.  Experiment,  by  Employer, ''"•^ 

882.  Hou.e.  Owned  by  Workmen ""'' 

883.  Subject  to  Economic  T^w,  ^'** 

884.  Mlscllaneou,  Personal  Con'su,  "ptl™  .■;••■•  '"' 

s  c^rorI:i:inr^^"";'":-:"  - --"p«on  •  -- 

887.  Changes  in  1830  and  187S       , '"^ 

888.  Prices    I89O-I909 '" 

289.  Important    Increases'      .      , ^'8 

890.  Conclusion  to  be  Drawn ^'* 

8J4 

CHAPTER    III 

PRODUCTIVK  CONSUMPTION 

291.  Consumption  of  Natural  Resources 

292.  Conservation  of  Natural  Resource,     .' f'^ 

293.  Causes  of  Waste  ^'^ 

C  320 


xviii 

•wmoii 

294. 
293. 
296. 
297. 
298. 
299. 


ECOiXOMICS 

Borrowing  Necessary 

Effect  of  Legislation  up'on  ihe  Bo^owing  of  Canitai 

Consumpfon  of  Human  Life  and  Energy  ^ 

Reae  .ona  of  Consumption  upon  ProducUon  !      '      ' 

Reacfon,  of  Distribution  upon  Consumption  '      ' 

Reactions  of  Consumption  and  E«hange  '      ' 


■  322 
32i 
323 
326 
327 
328 


PART  v..  THE  ECONOMIC  ASPECT.  OF  THE  STATE  AND 
MUNICIPALITY 

CHAPTER    I 

PROTKCTroV   AN-D    FR,,E   TRADE 
Laissez-faire 

Regulating  Foreign   Tr.adc ®^' 

Protective    Tariff      .  ^''2 

I'iriff  for  Revenue  .      .      '  ' ^^^ 

Free  Trade  in  Great  Britain ^^* 

Fair   Trade   Movement ^^* 


300. 
SOI. 
302. 
303. 

sot. 

305. 


306. 

S07. 

308. 

S09. 

310. 

311. 

312. 

3 1. '5. 
314. 
SIS. 
316. 
SI  7. 
318. 
819. 


CHAPTER    II 
REGULATION   OF  DO.MESTIC  TRADE 
Municipal  Regulation    . 
State    Regulation      .      . 
Arguments  For  and  Against    " 
Miscellaneous  State  Regulations 
Control  of  Quasi-monopolistic  Ent'erpn'. 

Responsibilities  of  Government' 
Disadvantages  of  Government   (■„(„,, 
Regulation  of  Railways 

Economic  Effect  of  R.;,l«.ay  Control  ; 

I  be  Hegulation  of  Trusts  . 
Standard  Oil  Trust       .  ' 

Objections  to  Trusts  in  Uniied  States  ' 
Difficulty   of  Dissolving   Trusts 


S37 


■    339 

.    339 

-   341 

.   342 

.    343 

.    344 

.    344 

.    34.'> 

346 

346 

348 

349 

350 

351 


CONTKNTS 


320. 

:m. 

322. 
323. 
321. 
325. 


Stock   Watering 

Conclusion  „M„d„,;„.„-c,;,„„;.,^.;,  •   • 

National  Ownerslnp  of  I.a„,| 

n.stributi„n„fI.,,„daG..„cra]].„ii,;      ' 
Nationalization   of    Industry  "        ' 

Trust.  Are  a  Step  Toward,  x;u™,a,Owner»„ip 


.  352 
.  3-,S 
3.55 
356 
338 
359 


326. 

327. 

328. 

329. 

330. 

3SI. 

332. 
333. 
331. 
835. 


CHAPTKR    HI 


TAXATION 
The  Revenue 
Taxes   on    /nconie 
Imports  and   Exports 
International  Trade  Depend: 
t-lnssification  of  Revenue 
Graduated  I„„,n:e  T.-.x 
Two  Theories  of  Taxation  .' 
"ho  Pays  Taxes.' 
Marginal  Producer  . 
Economic  Strength  of  Groups 


•-pon  Comiiarative  P; 


362 
362 
363 
rices  361. 
36.'! 
367 
368 
370 
371 
371 


336. 

337. 

338. 

339. 

310. 

311. 

312. 

313. 

314. 

.?15. 

316. 

317. 

318. 


CHAPTER    IV 
THK    BlTnOKT    AXn    P,.BI.,C    nEBTS 


Public   Expenditures 
Annual  Budget   .      .  '      '      ' 

Public    Debts      .      '  ■      '      • 

Early  Government  Loans  '      '      '      ' 
Government  Securities   .  '      '      '      ' 

Funded  Loans 

Public  Debts   of   Various    C„u„,h,;    '       ' 
temporary  Loans  and  Loans  for  Fixed  Period 
Conversion  'inrl  n„j        i-  reriod: 

«..  1"^*T''''»"  »f  P"'''- Debts  . 


^.dustria.  Activity  of  ti:  s;:;"""^ 

Responsibilities  of  State  Industrial  En 


nterprises 


.  371 

•  376 

.  378 

■  379 

.  380 

.  381 

•  382 

■  382 

.  .fSl 

385 

386 

388 

389 


T^^    i .     -mnj:-,:3. 


"  ECONOMICS 

CHAPTER    V 

LOCAL  GOVERNMENT  IN  ITS  ECONOMIC  ASPECTS 

■BcnoN 

319.     Local  and  Municipal  Finance  '*°'' 

350.  Provincial  Taxation  in  Canada.      ." *^^ 

351.  Corporation  Tax  an  Income  Tax  l^^ 

352.  Utilizing  Prison  Labor  .  ^^* 

333.     Municipal  Finance   .  *^* 

354.     Tax    Exemption,      .  ^^6 

357.  Method  of  A.sess.„..,t  for  Municipal  Taxes.'      .'      '      'Z 

358.  Municipal  Administration    .  ■      ■      ■      ■   m 

359.  Local  Government  Board  i„  England  '. tnl 

300.  Local  Independent  Action  .  *"^ 

361.  Municipal  Enterprises  *°^ 

362  i„e„ased  Jfnnicipal  Indchtedness' Results      .'      '      '      '   ^l 

£.  ^r';;sr:: " '-''-' """  "'-"^ » — '  *- 

365.  In    Canada  *"* 

S66.  Mmiicipal  Officials **"' 

367.  Agitation  for  Commission  Government'      .'.'■■■  tZ 

368.  Economics  of  Municipal  Enterprise    .  '      '  408 


369. 

370. 

371. 

372. 

373. 

374. 

375. 

376. 

377. 

378. 

379. 


CHAPTER    VI 

SOCIAL   LEGISLATION 
Factory   Acts      . 

The  '.Vorlting  Day  .      .      '      .' *" 

Factors  to  be  Considered     . *'* 

Accident  Compensation  .      . *'* 

German   Accident   Insurance *"' 

German  System  Not  Financed  by 'state  .'      .'      '      '  H^ 

Workmen's  Compensation  Act  in  England  .  ,'  '  '  H, 
Federal  Compensation  for  Accident  in  the  United  States  422 
Question  of  Responsibility  ^ 

Individual  and  Collective  Responsibility  Compared'      '   111 

Assumption  of  Costs  i  »"  u  ■      .    iJ5 

,     •      .      .   426 


CONTENTS 

XXI 

■Bcnoiv 

380.  Economic  Effect,  of  Workman',  r- 

MI.  Old  Age  Pension,    .   '^'"'""'"  '  Compen,ation  System,  428 

S82.     History  of  Pension  Acts *29 

383.  Canadian  Situation  .                         ■••■••.489 

38t.     Labor  Exchange, •.431 

385.  A  New  Experiment  . '♦SI 

386.  ■•  Right  to  Work "   .       ' ■      •      •      .   432 

387.  Unemployment    .  •      •      .   433 

388.  ■I-^urance  Against  Unemployment'      '  ■      '      •      •   *34 

435 


389. 
390. 
391. 
392. 
393. 
394. 


CHAPTER    VII 
SOCIALISM 
Origin  and  History  of  Socialism 

Progress  a  Result  of  Circumstance,   .' *'« 

Classification   of  Socialist   Doctrine,  '*'" 

Explanation    of   Sociali,t   Doctrine, *^^ 

Various   Jletliods      .      .  *■*! 

Significance  of  the  Movement **^ 

445 


'mmm  m 


PART  I:    PRODUCTION 

CHAPTER    I 

INTRODUCTIO.V 

1.  Economics  as  a  science.— The  difference  between  a 
science  and  a  merely  disconnected  series  of  statements 
w  that  a  science  offers  an  orderly  sequence  of  ideas 
Economic  science  may  thus  be  said  to  present  an  orderly 
sequence  of  ideas  concerning  that  part  of  life  which  con- 
sists in  the  experience  of  needs  and  in  their  satisfaction 
considered  in  relation  to  the  resources  available. 

The  needs  of  mankind  are  not  exclusively  susceptible 
of  satisfaction  by  material  resources;  but  most  of  our 
fundamental  needs  are  of  this  character.     Those  of  our 
needs  which  are  satisfied  by  other  than  material  things 
cannot  in  general  be  satisfied  except  by  the  sacrifice  or 
surrender  of  material  resources.     The  first  and  continu- 
ally recurrent  need  of  all  hving  beings  is  food-indeed 
for  any    )articular  living  being,  a  particular  kind  or 
vange  of  Kinds  of  food— susceptible  of  assimilation  by  the 
organs  of  the  body.     Other  appetites  emerge  as  the  liv- 
ing being  reaches  maturity-appetites  scarcely  less  im- 
perious than  the  appetite  for  food.     The  needs  of  mental 
and  moral  stimulus  which  may  be  held  to  be  peculiar  to 
man,  although  they  be  regarded  as  non-material,  have 
especially  through  their  bearing  upon  the  organization 
of  society,  a  very  definite  economic  aspect.     Some  of  the 
data  with  which  economic  science  concerns  Itself  are  no 
C— I-l  J 


«  ECONOMICS 

doubt  difficult  to  procure ;  but  a  very  large  part  of  this 
data  lies  within  us  and  about  us,  although  this  fact  does 
not  necessarily  render  the  study  an  easy  one. 

2.  The  social  aspect.— Rcnnonuc  science  as  it  has  de- 
veloped in  modern  times  lays  great  emphasis  upon  the 
essentially  social  character  of  the  economic  processes; 
that  is,  it  purports  to  investigate  in  a  critical  manner 
the  extent  to  which  the  operation  of  these  processes  makes 
for  the  benefit  of  the  community  as  a  whole.  Nor  is  the 
expression  "community"  regarded  in  a  narrow  sense. 
There  is  included  not  merely  the  present  living  genera- 
tions, but,  although  more  vaguely,  the  permanent  com- 
munity whose  interests  are  not  always  identical  with 
those  of  a  given  social  group  at  a  particular  moment. 

The  science  of  economics  looks,  moreover,  at  the  proc- 
esses which  together  comprise  economic  life  as  being 
organically  related  and  as  being  conducted  in  relation  to 
an  organized  body  analogous  to  a  household.  In  this 
large  household,  differing  in  many  important  respects 
from  a  typical  human  household,  there  is  a  certain  auto- 
matic distribution  of  benefits  as  there  is  in  any  well 
ordered  family— although  not  necessarily  in  precisely  the 
same  manner  as  is  customarj'  in  the  family.  The  normal 
manner  of  the  distribution  of  these  benefits  is  the  law  of 
the  household.  In  Eastern  Europe,  for  example,  the 
law  of  the  family  respecting  shares  of  labor  and  shares 
in  the  product  of  labor  is  often  very  precise,  and  any  in- 
fringement of  it  is  apt  to  lead  to  the  offender  being 
ostracized  not  only  by  the  family  but  by  the  community. 
The  law  with  which  we  are  concerned  is  not  the  custo- 
mary law,  which  is  variable  in  different  regions,  but  the 
normal  manner  of  the  production,  exchange  and  distribu- 
tion of  the  products  when  these  processes  are  carried  on 
collectively. 


INTRODUCTION  3 

the  economic  processes™  ^^   ^X  n  "'  "'1 
ascertaii.iniT  what  li.rht  tl,..    Tu  ,     ^  P"rpose  of 

are  useful  tlZrio  JJia  -"rranr'l?''  t>^ 

^^t:ri^:r"--'--"t^-£: 

ample,  if  „.e  ^^  f  117  '"e^l-  ''!'"^'  '°^  ^^- 
and  a  certain  atmospheric  prss  1  «l  ,*7P^'-«t'-e 
theory  of  the  exnnnin.    f  ^  """*^'  "^  l^-nowledge  of  the 

clict  the  LhavW  o?rtafn''""  ""","  ^"'''"^  ""  *"  Po- 
tions or  under  anvoTher"T;'  ""''''"  ^'''^  '^'■^'^"  ^«"''i- 
assumed.     PlvsSl  ex"^^^^  "'"^'^  '"'^''t  also  be 

social  experi.rn;raTe'r;Sc;r^^^^^^^^^ 
necessary  to  rely  chiefly  upon  o^se   ition  1,      T''' 
"ig  conclusions  from  obserl-ationVr-  '"  ''™'^- 


'S 


4  KCONOMKS 

iiusiiiess  mail ;  hut  such  ktiowledge  may  he  turned  to  iii- 
vahiahlc  account  by  one  wlio  has  a  talent  for  business 
and  opportunity  to  exercise  it. 

4.  The  governmental  lupect. — Apart  from  the  view 
of  economic  science  as  concerned  with  the  spontaneous 
activities  of  individual  members  and  groups  of  members 
of  the  community,  and  with  the  relations  of  tliese  to  the 
welfare  of  the  whole,  there  is  the  view  concerned  witli 
the  economic  side  of  the  governmental  activities  of  the 
state.  The  government  of  a  state  is  conducted  by  per- 
sons who  have  been  endowed  with  jjower  by  the  peo- 
ple, or  by  inheritance,  or  who  have  been  able  to  seize 
power  by  force.  In  any  case,  the  exercise  of  govern- 
mental power  involves  economic  relations  between  the 
authority  which  exercises  it  and  the  jieople  over  whom  it 
is  exercised.  These  economic  relations  are  partly  of  a 
compulsory  character,  as  in  taxation,  i>nd  partly  of  a 
contractural  character,  as  in  the  postage  regulations.  j\s 
the  functions  with  which  governmental  authority  is  en- 
tmsted  become  more  numerous,  the  extent  and  intensity 
of  these  economic  relations  become  greater. 

While  the  exercise  of  the  functions  of  government  is 
an  art  and  not  a  science  in  the  strict  sense,  the  science 
which  concerns  itself  with  the  functions  of  government 
from  a  comparative  and  critical  point  of  view  is  generally 
known  as  political  science.  That  part  of  political  science 
which  is  concerned  with  the  methods  and  course  of  those 
activities  of  the  government  in  which  the  government 
controls,  acquires  and  intromits  with  property  belonging 
to  the  community  either  collectively  or  individually,  is 
political  economy  i'l  the  strict  sense. 

There  can  be  no  definite  division  between  political 
economy  in  the  sense  of  the  public  economy  of  the  state 
and  political  economy  in  the  sense  of  the  economy  of  the 


v 


iXTnont'CTiox  a 

community,  because  the  reactions  of  tl,e  two  spheres  of 
activity  are  too  intimate  for  division.  For  tl  sake  of 
convenience,  however,  it  is  a.lvisable  to  treat  each  of  the 
spheres  separately  in  order  to  make  clear  the  character- 
istics of  each  While,  however,  they  may  1«  separated 
|n  thought,  they  cannot  be  re.rarded  as  otherwise  than 
mseparable  m  economic  life. 

5.  The    four    ecommic    processes.— The    economic 
processes  are  customarily  catalojfued  as  follows  :-Pro- 
<Iurtion     Exchanjfe     Distribution    and    Consumption. 
The  order  in  which  these  processes  are  studied  is  a  matter 
of  indifference;  the  important  point  to  ,„„ice  is  that 
they  are  interacting  parts  f.f  one  whole.     That  whole 
IS  economic  life.     It  is  thus  impossible  to  understand 
be  phenomena  of  exchange  without  also  understanding 
ductfon  ""'"*'"''  "^  '^"*''''"*'°">  'consumption  and  pro- 
In  different  parts  of  the  world  the  methmls  vary  and 
in  different  ages  methods  have  varied;  but  in  all  places 
^id  times,  all  forms  of  economic  life  yield  upon  analvsis 
these  processes,  by  whatever  name  they  may  be  called 
In  some  of  the  forms  the  differentiation  of  the  processes 
may  be  obscured.     For  example,  in  the  patriarchal  or 

less  that  of       ?•  *"'  °P""*'""  "'  distribution,  and  still 
ess  that  of  exchange,  may  not  be  obvious;  in  such  a  case 
the  important  and  obvious  pro-^sses  are  production  and 
consumption;  the  others  assume  a  minor  place 

In  more  highly  developed  industrial  societies,  ex- 
change and  distribution  come  to  be  regarded  as  of  ob- 
vious importancs  and  it  is  even  urmal  in  .such  societies 
to  overestimate  them  and  to  underestimate  the  signifi- 
cance of  production  and  consumption 

forll"  ""''"  -^"rf  *°  '■""""'^'"  ''  ^^^^  "°  '"^"^r  what 
form  economic  life  may  assume  it  ^s  a  unity  and  that  one 


*  ECONOMICS 

element  cannot  be  affected  without  influencing  the  other 
elements.  Ihe  economic  process.,  appear  on  investiua- 
tion  to  be  mvolved  in  scries  of  more  or  less  complicatcl 
reactions.  The  study  of  economic  science  ia  chiefly  de- 
voted to  mvestigation  of  the  reactions. 

dihona.-U  has  lK..en  «bser^•ed  that  the  economic  proc- 
esses  are  concerned  primarily  with  material  thingsl  but 
economic  hfe  is  not  composed  exclusively  of  these  l,ecause 
for  some  non-material  things-the  things  of  the  mind 

S.  .„*'"'"""'"""'*"■''''  *'■'"«''  ^'»  ^  exchanged. 
What  w.ll  not  a  man  give  in  exchange  for  his  life?" 
But  the  economic  processes  as  they  concern  the  things 
of  the  body  or  the  material  side  of  life  must  first  engage 
our  attention.  **  •* 

There  are  certain  indkpensahle  conditions  to  which  all 
of  the  economic  processes  are  subject.     These  are  time 

without  which  the  economic  processes  cannot  be  con- 
ducted with  smoothness  and  regularity-these  are  na- 
tional security  and  social  stability  The  indispensable 
conditions  need  no  illustration;  the  desirability  of  the 
contingent  conditions  may  be  best  illustrated  by  cases 
m  which  they  are  absent.  ^ 

During  the  siege  of  Kars  in  Armenia-the  Turkish 
fortress  which  maintained  a  protracted  defense  in  tSe 
Russo-Turkish  War  of  1876-77-the  villagers  b ll 
the  fortress,  which  was  situated  on  a  precipitous  river 
banK.  drove  their  cattle  to  the  fields  in  the  morning"  nd 
drove  them  home  at  night.  Russian  and  TurkishfheSs 
were  being  hurled  through  the  air  over  the  heads  of  h 
villagers  during  the  course  of  an  almost  incessant  bom- 
bardment for  about  three  months.  This  is  an  example 
of  industry  without  national  security  " 


INTRODUCTION  , 

'        ce,J£r  "C^  Tf"'  ^"*''^"'  "'"■'^^  '■"  Moscow  in  De- 
cemoer,  1003,  while  a  irrent  nni-t  ,.r  n.      •» 

K    passages  m  the  barricades  to  buv  foml     Ti.;„ 

!»«!.  :";':^rSvTrr '"""""'"""• 

".ighi  b.  no';^  .  ;'J=:!  "—  1i.<»W  the,, 
lean  Cvl  War  ;«  .  ~,^  •    •  ""' '^''™«"-    IheAmer- 

It  IS  somefmes.  but  not  invariably,  possiWetfeff    , 
changes  of  an  important  character  g.aZnv  with    . 

S^frn*t^h:::Ltr• '"  ^^'^^^ 
histoo..  virjirbinToMC^s^orr^^^^^ 

promises  the  economical  processes  S  ^r^"" 
renders  production  difficulLr Tpossil-k  it^^  T 
tribut  on,  interfere*  wifh  „    i,       t"^^''^^^^'  "  alters  dis- 

sumption  It  mav  bl  tb  .  "*^'  ""'^  ''™'"'^''-  «=»"- 
evenLllyresuirrbetfiUothet;-'"'  ""'''^'^  """^^ 
s^^nse;  h  :t  the  sacrifice  may  ht^as  an"  Jm"  rT™"''' 
nomic  consequence  more  or' lei  .el::  Z:^^  ^l 
years  may  elapse  before  the  economic  eqm  fbri ^ iTe 


"  ECONOMICS 

e.stablisl,«l.  The  R„««,-.r„,,„,K.«,  War  may  ultimately 
Imve  amsenxmn-vH  \K-uvt\vM  t<,  J„,,«„.  altlmuKh  tk-  »aJ- 
rifions  ,t  .K^-usionfl  havt  al.cct«l  the  ci,..„trv  for  niariv 
years.  *  ' 

a.  The  final  purpote.-The  en<l  f„r  which  the  eco- 
nonnc  pr,Kx.s.s..s  are  c.,n,l„cte,l  is  the  .satisfaction  of  the 
nee.18  of  mankin.l;  indeed.  pr<Hiueti,.n  n.ay  Ix:  remrde.1 
as  the  heKinning.  an.l  consumption  as  the  end  of  this  sat- 
rsfmtmn.  We  may.  therefore.  pro,,erly  c-onsider  in  how 
far  any  particular  act  or  series  of  acts  wn.luces  to  in- 
crt-nse  or  to  diminish  the  total  means  available  for  the 
satisfaction  of  human  needs.  In  other  words,  we  shall 
hnd  ourselves  constantly  c^nsiderinp  whether  this  or 
that  legislative  measure  or  this  or  that  voluntary  act  is 

n^  ..?„."""^"'*  *"  *'"^  '""™'*«'  "^  "''at  Adam  Smith 
ca  led    The  Wealth  of  the  Nation."  or  what  others  hive 
called  the  rent,  interest,  wages  and  profits  fund,  or  the 
social  or  national  dividend." 
0.  The  national  dhuh„d.-The  production  of  com- 
modities by  the  people  and  their  consumption  must  re- 
sult either  in  the  increase  or  in  the  diminution  of  the 
national  wealth,  or  "social  dividend."    Consumption  of 
social  wealth  in  the  production  of  objects  of  beauty 
even  though  these  objects  are  not  obviously  productive 
of  an  equivalent  amount  of  wealth,  may  be"  justified  on 
he  ground  of  the  stimulus  which  beautiful  objects  give- 
hey  make    or  life  in  the  best  sense.     But  consump-' 
tion  m  social  wealth,  even  in  such  objects,  must  bear  a 
certain  proportion  to  the  total  consumption  of  any  group 
otherwise  the  social  dividend  may  be  diminished' by  sud,' 
consumption      The  stupendous  tombs  of  the  Egyptian 
kmgs,  and  the  immense  temples  erected  by  them  to  the 
gwls  of  Egypt  were  sometimes,  although  not  always 
objects  of  beauty;  but  in  certain  ages  the  construction 


INTIIOUUCTIO.V 

fully  productive  exeenS'         ''^  P"Hluctive.  are  not 

tl.e  di  turbans  of  SI*       "  ■*""""  '^"«'  "'  *''"e. 

expenditure  tvoL?Zl";r''"'i''"^^  "'"'^"  ""» 
"national  dividend  "    ?hl         T.  "  '^""'""t'""  i"  the 

theexpenditu^i^tade  bi;.  ""'''  '""""  "''^*''" 

per  Js.     If  the  Ze^J        «"ve„,n.ent  or  by  private 

«..V  purpose  n  aZTtTt/''^'?'"  "  ""'P''^  ^'"• 
cripple  t.^irpr"odue^:e;:er;^^^^^^^^^^  Tf'?*  *° 
must  be  reduced.  national  dividend" 

in  ;itS;,^;:si^:cj°"  '^^  ^'^^-'^ '-  "^ 

Excessive  private  1  "ulvrnr.?  '  '""'*  '^""™''  '"^• 
«nd  the  boSy  and t ^comlt  Z7T'':  "''''' 
prfHluction;  but  luxurv  is  a  r    „f  '^'""""t'on  of 

impossible  to  dr  w  a  y^cL  lineir^""'""  ""'^  "  " 

and  desirable  standanl  of"  mfortatlT  "  "''"'"'""^ 
ard.    In  Western  F,„     """'"f*  and  a  luxurious  stand- 

bread.    In  GreaTBritl.n       ,  T^^'  '^'  ''™^'n  ««■  »"«ck 

in  France  ^S^^^::;^''''^^  '^  «  ^--ry; 

as  a  luxury  in  1802-08  and  fa  ,  i"  «  f  '"'"  ""^"^"^ 
and  America  until  lon^  a  teVthat  iat""^  T  ^r^^ 
;vl"ehisanecessitytoa,fanof  etter    wouW  b     T"^' 

o  a  person  Mho  could  not  utilize  t  F  °  1  I  *  '"-^"''^ 
letters  five  thousand  volumes^a;  b^  n^""""  °^ 
a  second  five  thousand  miT,\^^  be  necessary,  while 
1^^^^^  nousand  might  be  regarded  as  a  culpable 

Some  people  depend  very  little  upon  external  stimu- 


10 


FXONOMICS 


lus;  they  have  their  intellectual  and  moral  resources  with- 
in them.  Such  people  are  little  inclined  to  luxurious 
livmg;  but  there  are  others  whose  powers  of  production 
are  dependent  for  their  support  upon  constant  external 
stimulus.  Their  full  powers  are  not  developed  without 
an  amount  of  luxury  which  to  some  others  might  be  in- 
jurious or  fatal.  The  most  productive  ages  in  an  indus- 
trial, as  well  as  in  an  artistic  sense,  have  not  been  those 
of  which  asceticism  was  the  dominant  note.  Sordid  in- 
dividualism and  complete  disregard  of  social  interests 
and  of  social  progress  have  frequently  developed  among 
ascetic  groups  in  various  races.  Individuals  and  nations 
alike  do  well  to  preserve  the  golden  mean. 


CH.^PTER    II 

PRly-Miy    PUA  ,£S    OF    PRODUCTION 

»«t?Ss°i::;:,«™p;'p"™.  producer 

duction  involves  r>roP„r;„     f  "'"*  *<^"^«  P™" 

raw  materia      oJndTn/r'"  "''""' '"'  "'^"^'"^  f™'" 

oTSr^  in  the  foL  o.  i::L:.  z: J- 

'"  '  -"""-ity  or  a  nation.  I  i  a/tWt  th  ^f  " 
v.ew  can  present  itself  only  to  the  m.nd      W  *"■ 

see  the  t6tal  production  of  «nv  1  .  "^ ''''"  "•^''^"' 

grasp  the  extent  of  it  fl^  "''*'°"'  ""''  '^^^  ^^  «««-> 
these  are  avaiSe  but  ,^  '"^  '*''"*''^^'  ^^'^-^  ^^er; 
any  Particula^^^^  /;::7^^^^^^^^  -fe  that  at 
tf.e  material  means  of  JsLnce  *^  ^'^  ^  *°*^'  "^ 

-''E:^'^:t\:.r^^:';2"-r 
St-rsTi™^^^^^^^^ 

stream  of  consumable  good  "somfofTh     """'""   ^'''^ 

distances  from  the  point  of  ZductionT  7"''-^^''* 

consumption    by    practic«hl,  °  ""^  P"'"*  °f 

ny    practicably    mnumerable    voluntary 


12 


ECONOMICS 


agents,  each  of  them  remunerated  for  the  service  which 
he  renders,  is  essential  to  the  existence  of  the  community 
as  an  organized  group  of  people. 

If  the  stream  of  consumable  goods  is  steady,  ecommic 
life  goes  on  smoothly;  if  for  any  reason  the  stream  is 
interrupted,  more  or  less  serious  consequences  ensue.  It 
is  obviously  important  for  the  well-being  of  the  nation 
that  the  quantity  of  consumable  goods  should  increase 
in  at  least  the  same  proportion  as  the  population  and 
that  these  goods  should  be  susceptible  of  being  moved 
to  places  where  effective  demand  for  them  exists.  This 
may  perhaps  best  be  illustrated  by  the  case  of  a  district 
rather  than  by  that  of  a  nation.  In  certain  provinces  in 
Russia,  details  being  for  present  purposes  unimportant, 
there  is  a  certain  annual  average  yield  of  grain  per  fam- 
ily. This  annual  average  yield  is  insufficient  to  provide 
the  amount  of  grain  which  is  regarded  by  medical  experts 
as  the  minimum  amount  requisite  for  the  support  of  an 
average  family.  It  is  thus  necessary  even  in  average 
years  to  send  supplies  of  grain  into  the  locality.  Those 
peasant  families  which  experience  the  greatest  shortage 
of  grain  are  obliged  in  years  of  scarcity  to  sell  every- 
thing they  have  in  order  to  buy  food;  some  are  relieved 
by  the  government  or  by  subscriptions  from  the  benevo- 
lent, some  die  of  starvation  and  of  disease  induced  by 
inferior  nutrition. 

A  nation  cannot  enjoy  adequate  well  being  unless  the 
aggregate  of  production  is  large  enough  to  enable  its 
population  to  subsist  either  upon  the  actual  products  of 
the  nation  or  upon  the  products  of  other  nations  obtain- 
able by  means  of  exchange.  Various  censuses  of  pro- 
duction, notably  those  of  Great  Britain,  the  United 
States  and  Canada,  give  some  idea  of  production  from 
a  national  point  of  view,  but  no  statistics  do  so  fully. 


PRIMARY   PHASES    OF   PRODUCTION  13 

i-i-Jhe  effect  on  a  nation  as  a  whole.— In  estimating 
the  effects  of  systems  of  production  it  is  necessary  to 
take  mto  account  as  an  important  element  their  effects 
upon  the  national  aggregate  product.     Thus  it  is  not  a 
matter  of  mdifference  to  a  country  that  its  agricultural 
or  Its  forestry  methods  are  such  as  to  produce  less  than 
might  be  produced  by  other  methods;  or  that  mining  is 
earned  on  so  unskillfully  that  great  quantities  of  min- 
erals which  might  be  utilized  are  wasted;  or  that  factory 
industry  is  less  efficient  than  it  might  be;  or  that  large 
numbers  of  people  within  the  nation  are  less  productive 
than  they  might  be.    It  is  also,  as  we  shall  see,  a  matter 
of  extreme  importance  to  a  nation  that  the  various  wants 
of  its  people  should  be  supplied  and  therefore  that  due 
proportions  should  be  preserved  among  the  various  con- 
sumable commodities  destined  for  the  satisfaction  of 
these  wants-in  short,  that  there  should  be  no  overpro- 
duction of  some,  and  underproduction  of  other,  com- 
modities equally  necessary  for  the  maintenance  of  life 
and  for  the  continuance  of  the  economic  processes 

13.  Simple  form  of  production.-Production  may  be 
regarded  as  presenting  two  {orms-simple  and  comvlex. 
In  both  of  these  forms  the  end  of  production  is  the  biing- 
ing  mto  existence  of  something  which  is  intended  by  the 
producer  for  some  use  or  for  several  uses 

The  simplest  form  of  production  is  that  of  manufac- 
ture in  the  strict  sense;  that  is,  d9ing  something  with  the 
hands.  A  peasant  child  known  to  the  writer,  desiring 
a  vessel  to  drink  out  of,  M^ent  to  a  place  where  there  was 

moulded  It  with  the  fingers  and  in  a  few  moments  pro- 
duced a  rough  cup  which  was  quickly  dried  by  the  sun 
The  cup  was  very  crude  but  it  was  made  quicklj'  by  man- 


14 


ECOXO.MU'S 


ual  labor  and  it  sened  its  purpose-in  other  words,  it 
was  an  object  of  utility. 

Much  of  the  potterj'  of  primitive  people  was  and  i. 
produced  in  this  manner.  The  earliest  lamps  of  the 
Mediterranean  peoples  appear  to  have  been  made  by 
taking  a  piece  of  clay,  shaping  it  into  a  round  shallow 
bowl  with  inward  curving  lip  and  then  pinching  one 
part  of  the  hp  between  the  linger  and  thumb  in  such  a 
way  as  to  provide  a  place  for  the  wick  to  lie  in.  So  also 
the  poaery  making  Indians  of  Xew  Mexico  formed  clay 
.nto  rope-hke  lengths  and  then  wound  it  into  the  shape 

1''  r  r  T'  "■■*'"'"*  '^'  ""''  "f  ''"y  implements 
other  than  the  fingers.     The  inner  bark  of  certain  trees 

r  "'!?  /  *  u'  °'"'  °^  ^^''"^  ^'^^-^  I^'^ke  in  Xorthern 
Canada  for  the  purpose  of  making  cord  which  is  knotted 
by  the  fingers  into  fishing  nets. 

14.  Raw  matmalSince  simple  production  is  very 
generally  practised  by  nomads,  settlement  and  occupa- 
tion of  land  IS  in  the  strict  sense  not  a  requisite  of  simple 
production      The  only  requisites  are  ral  material  and 
labor  force    the  atter  involving  skill  in  its  application) 
The  raw  material  may  be  hard  to  procure  eit.,cr  because 
of  Its  scarcity  in  a  given  region  or  in  nature  generally 
or  because  of  the  appropriation  of  it  by  the  community 
as  a  whole  or  by  individuals  who  hold  it  by  force  or  bv 
consent  of  the  community-that  is  to  say,  by  conquest 
or  robbery  or  by  common  or  statute  law.     Tfmbert  so 
scarce  m  extreme  northern  legions,  that  the  Eskimos  of 

Sclss  of  ';  r  P'^™''*  ''^  P"-''^  appropriation  in 
whether  Pt  requirements   by   individual  persons, 

We  tL  n  ";  '''''''^'''-     ^'"'^'^■-  <»'^  Canadian 

of  tmiber  from  the  public  lands;  and  under  various  acts 
of  the  provinces  of  Canada  and  the  States  of  the  Union 


I 


PRIMAHY   PHASKS    OF   PRODUCTION  13 

timber  limits  are  granted,  leased  or  sold  and  permits  to 
cut  fnjber  are  given  on  certain  conditions.  A  "ess  to 
m^erals  and  l.eenses  to  fish  and  hunt  are  simikrlv  prl- 

zaZ  ,s  tn  r?  "■'*'  °"'y  ''^^'^  the  social  organi- 

zation ,s  too  weak  to  irapose  restrictions. 

v.ry  w,U,  ,e,,  .ge,  ,p,i,„je  and  practice.    A  m.kc*  ?i 

difference  in  skill  on  the  n«rf  „f  *i,         ■    •  .  ^  ^ 

fore  the  primrtive  craftsman  who  possesses  it  leralv 
specializes  upon  some  manufacture  in  which  hfhaTh 
-me  proficient.    An  expert  a.rowma  J  wfu  ^ke    ': 
arroHs  for  his  tribe  and  he  may  do  little  else  * 

^^"zL^i^c^rL^:sx"r^  r™ 
-X^^fT-^-rr-^"- 

.Uh.ughwithlerenTpre;;?a:;dr^^^^^^^ 
de^ote  themselves  to  the  functions  for  which  thev  h  ' 
-shown  themselves  to  be  better  fitted  thin  oth  Is      rC 
essential  feature  of  the  simple  methn,!  ^f        !    x- 
the  directness  and  immediacy  S  11 C:,:?   ' 
produced  hecnsc  u  satisfies^  immSe  ^anr Th': 


16 


KCONOMICS 


need  incites  the  craftsman  to  produce  and  he  does  so  as 
soon  as  he  can  obtain  tlie  raw  material  or,  aware  as  he  is 
of  the  future  occurrence  of  a  need,  he  picks  up  a  piece 
of  material  which  he  finds  by  accident,  with  the  intention 
of  one  day  fashioning  it  into  some  object  which  will 
satisfy  a  probable  need  of  the  future. 

16.  Complex  production.— In  the  simplest  form  of 
complex  production,  the  product  of  an  operation  of 
simple  production  is  utilized  as  an  instrument  in  a  fur- 
ther productive  process.     It  is  obvious  that  not  all  simple 
products  are  susceptible  of  being  so  utilized.     Some  are 
made  for  special  uses,  as  in  the  case  of  the  cup,  for  exam- 
ple.   Others  are  made  for  ornament  or  for  food;  but 
many  are  made  for  the  express  purpose  of  facilitating  the 
manufacture  of  other  useful  things.     It  is  true  that  in 
many  cases  such  things  might  be  mr  le  by  means  of 
simple  production,  but  they  are  more  easily  or  more  ef- 
fectively made  by  means  of  some  instrument.     The  fact 
that  this  instrument  has  first  to  be  made  causes  the  first 
total  process  to  be  indirect  and  therefore'  slow;  but  sub- 
sequent processes  are  effected  more  rapidly  than  would 
be  the  case  if  the  simple  production  process  were  applied 
on  each  occasion.     Thus,  for  example,  if  a  primitive 
potter,  instead  of  fashioning  a  cup  with  his  hands,  makes 
a  potter's  wheel— a  very  simple  apparatus— places  the 
clay  in  the  center  of  it,  sets  the  wheel  spinning  and  then 
by  the  dexterous  use  of  his  hands  gives  the  clay  a  round 
form  or  such  an  outline  as  he  may  design,  he  employs 
complex  production.     He  has  user'  the  product  of  one 
operation— his  wheel— to  accomp,  .i,  another  operation, 
the  production  of  a  vessel.     He  occupies  time  in  making 
his  wheel  during  which  he  might  have  made  many  cups- 
but  his  power  to  produce  cups  in  nmnbers  per  unit  of 
time  IS  for  the  future  greatly  increased  and,  moreover  he 


PRniAHV    PHASKS    OF    PHODUCTIOV  ,7 

tioJ':lT£''oT''  """'«'— I"  --Plex  procluc 
1h,s  .equ,s,te  ,s  the  instn.ment  or  tool  hy  means  of  T'ch 

incTdent  n  ,11  J'''^/^^"^!"'^*'**-"  i«  an  indispensable 
inciaent  m  all  complex  production. 

iAIoreover,  instruments  or  tools  are  used  fn.  tu 
facture  of  other  instruments  and  so  on  u'w  „  the'  htl 
orgamzed  economic  life  of  modern  communitL'l'S 
pies  esTrl  r^^^  '^'  --P'i-ted 

les.ff„  executed  in  various  more  or  less  refractor 
o«^p=,™  .„.  h.s  tand  the  „„  J.,„w"LX  ,:! 


18 


ECONOMICS 


stmment,  made  the  instnunent,  found  the  raw  material 
for  the  final  product  and  eventually  produced  the  final 
product.  In  such  a  case,  as  in  a  similar  instance  of 
simple  prmluction,  there  could  arise  no  question  of  'he 
ownership  of  the  finished  product;  at  all  events,  in  any 
community  where  such  a  product  was  regarded  as  right- 
fully subject  to  private  ownership.  Even  among  people 
who  in  general  regard  food  as  the  common  property  of 
the  tribe,  private  ownership  of  weapons  is  usually  recog- 

Cases  of  individual  manufacture  of  things  which  are 
the  result  of  complicated  processes  are  not  uncommon. 
In  Central  India,  for  example,  some  of  the  workers  in 
iron  find  the  deposits  of  native  iron  in  the  mountains, 
burn  charcoal,  refine  the  metal  and  make  out  of  it  tools 
customarily  used  in  the  villages. 

The  processes  of  complex  production  are,  however, 
usually  carried  on  by  joint  or  successive  labors.  A 
group  of  Russian  peasants  was  visited  by  the  writer  im- 
mediately after  they  had  settled  in  a  region  previously 
unoccupied.  Upon  their  arrival  the  first  thing  they  did 
was  to  hunt  for  clay.  When  they  found  it,  they  made 
rough  bricks,  dried  them  in  the  sun  and  on  the  second 
day  after  their  arrival,  they  built  ovens  in  which  the 
women  baked  bread  for  the  group.  Meanwhile  some 
of  the  men  were  cutting  down  trees  and  building  large 
temporary  houses  each  to  contain  several  families.  In 
such  a  case  joint  labor,  and  joint  use  of  the  instruments 
and  joint  enjoyment  of  the  product  were  clearly  ex- 
pedient. 

19.  Primitive  causes  of  disputes.— When  joint  or  suc- 
cessive labors  are  exercised  upon  a  series  of  productive 
processes  of  a  complex  character,  the  same  questions  arise 
as  may  arise  even  where  the  productive  method  is  simple. 


production,  whicl,  are    „/T      1  ?',"  ^•'■"*'-'»"'t'"-.s  to  the 

to  settle  sue,,  elairon"  ^^  Sr:?'';'  f  ""' ^^^^ 
«•>  "lual  division  might  be  as  mp T,  '"'  J""*"*- 

equal  division  whieh  It, "^a     t^t'"'"' ".""  "" 
oneortw.  andi,ienrir.t,V„i       .     •  ^  "wnership  I,y 

Here  ajrain  custom  n,>-i  x-  '  "  the  others. 

iaw  i"tfrven:t  aCZc  r  ""'■'""^•^-  "^  ^*"'"*« 
pute  may  be  sett,ed      r!    n  i  "''""  "■'"'^''  «'«  <'is- 

more .„d „„„ ,iiiB„|, r^'  •"'"  '"rf.  it  become. 
Produc.  „,  .  „„r„  .:^  "r  '"■■'  »'  »f  '"  «» 
certain;  if  pr,  |„ctin„  ;  ,       "^  °"^  conclusion  is 

-s.  the  pi;  atT^^eZ  't^.*^  '^'  7^™'  "«- 
'ightly  be  regarded  as  tl^Tv  "  ^"'"'^"'^^'l  ^^^n""* 

"f  these  agerfcies  ■""'"''"^  P'-°P^'-ty  »f  any  one 


CIIAPTKR    III 


FACTOaS    OK    PRODUCTION 


20.  Three  divmons  of  labor. — The  iiiilispensnblc  con- 
ditions of  protluction  are  time  and  space.  The  contin- 
gent conditions  are  national  security  and  social  stability. 
The  factors  or  requisites  of  simple  pro<hiction  are  mate- 
rials and  labor;  and,  of  the  complex  or  lonj?  production 
process,  and  (inchiding  materials  upon  and  within  it), 
labor  and  instnmients  of  capital.  It  has  lieen  made  clear 
that  these  factors  of  pnxluction  may  he  employed  by 
one  perskjii  or  by  many.  In  highly  organized  industry, 
materials  may  he  assembled  from  many  different  regions 
and  may  be  the  products  of  numerous  complex  produc- 
tive operations.  These  materials  may  be  subjected  to 
further  processes  by  means  of  instruments  similarly  as- 
sembled and  by  the  exercise  of  labor  of  a  diversified 
character. 

In  all  productive  enterprises  of  a  certain  magnitude, 
labor  may  be  regarded  as  being  obviously  divisible  into 
three  important  categories:  (a)  directive  labor  exercised 
by  the  responsible  chiefs  of  the  undertaking;  (b)  super- 
intending labor — that  of  managers,  foremen  and  the 
like;  and  (c)  manual  l.ibor.  The  enterprise  may  or  may 
not  be  socially  necessary ;  but  its  existence  being  granted, 
labors  of  all  three  categories  are  necessary  to  its  continu- 
ance. AVhatever  tlie  dimensions  of  the  indtistry,  the 
functions  implied  in  these  categories  must  be  performed, 
whether  by  one  person  or  by  many. 
SO 


lAcroHs  or  phowction  h 

Dirwtive  nn.l  .s,.i,eri,.ten.li„ff  lal,„r  is  as  ..eccssarv 
as  ...nnual  lalK,r.  entirely  irrespective  ..f  ti.e  IZTZ 

^K'Klt  uul.  „I„al,  l,y  a  ^roup  „f  partners.  I.y  a  joint  «fiK-k- 

y  ine  state.    The  form  may  affect  the  efflcienev  of 

riST  r  "  •'?  "•"  ""'''  *"^'  --tial  ira  - 
itnsiics  oi  Its  orffani/ation. 

21.  Z-««d  „„rf  «//«7«/.-The  other  factors  are  simi- 
lar  y  necessary,  whatever  may  he  the  form  of  tSreZ 

s  Ld ",:;;" ;'"k* "t-t'^^^- --y  •'« eontin.; . 

In  ♦  J    '       "'*  '■'*'"■'■  ""•"  it  "'•  '^•a'^e  it.     That  is 

to  say  they  must  exercise  the  function  of  kn.lhojje 
rh.s  funcfon  is  actually  necessary  nl.ether  t  e    an^i 
beWs  to  a  private  individual  or  to  thestate.  ' 

5>.mdarly  the  mstrun.ents  of  pro<luction,  the  l.uildin«.s 

22.  Fijrcd  anrf  «>c«/«<i«^  captVa/.-The  provision  of 
tttm  oTthf '"^  '-''''''  ''  "----^  >-^eTt    e  „" 

.^t■ndl;rs':;rd^rtrs^^^^^^^^ 

upon  the  conditions  of  credit  Wanted  to  t.f. 

and  .ranted  hy  it.  as  .ell  as  .^oT:^'u:XTZ'P. 


a 


F.rovoMirs 


.hictivc  process  in  whiph  it  is  vixk>xkv,1     In  some  Indus- 
tries  tlie  «xt(I  t'upiial  is  .siiuili  in  pr..p„rli..ri  to  the  o.it- 
I)ut.     Ill  iiKiiistries  wliiiT  haii.l  labor  is  fxclusivciv  or 
chidly  cinplovf,!  or  uliiri'  the  pr.Kliict  is  rnpi.llv  pr 
cluml  and  iinnifdial.ly  salalili-.  tin-  aniounl  of  fixnl  cap- 
ital IS  sometimes  extremely  small.     In  those  industries 
in  which  It  is  nec-essary  to  niainiuin  lar^e  stocks  of  raw 
material,  or  materials  in  a  partially  nianufaeturwl  state, 
in  those  industries  in  which  the  sale  of  the  finished  pnxl- 
uct  IS  customarily  slow,  an.l  especially  in  those  industries 
(like  ship-lHiildin^)  in  which  the  pim-ess  of  production 
IS  lonff.  the  amount  of  eireulutin^  capital  neeessarilv 
involved  in  the  husiness  is  relativelv  ^reat.    The  develop'- 
nient  of  machine  mai.ul...  ;.,re  has  increased  the  propor- 
tions borne  by  both  fixed  and  circ.ilatinif  capital  to  the 
output. 

23.  Sources  of  capilal.—ln  order  that  an  enterprise 
may  be  continuous,  it  is  necessary  that  the  fixed  and  eir- 
culatinff  eajHtal  should  belonjf  to,  or  alternatively  should 
be  under  the  control  of,  the  organizers  of  the  enterj.rise 
Ihey  may  obtain  it  from  ordinary  shareholders,  that  is 
from  persons  who  share  the  ,,rotits  and  expect  to  have 
to  share  the  losses;  from  preference  shareholders  who 
give  their  capital  permanently  at  a  fixed  rate  of  inter- 
est; from  bondholders  who  lend  their  capital  for  u  fixed 
period  or  permanently  at  a  fixed  rate  of  interest;  from 
bankers  or  others  for  short  or  indeterminate  periods  also 
at  a  fixed  rate  of  interest;  or  otherwise.    The  capital  of 
large  enterprises  is  customarily  provided  by  all  of  these 
classes  of  persons  and  is  frequently  provid;d  by  people 
who  live  m  countries  distant  from  the  locality  where  the 
industrj'  IS  conducted.     Industries  in  .South  America  are 
extensively  financed  by  jjcople  in  the  tTnited  States-  in 
dustries  in  Mexico  by  people  in  Great  Britain,  the  United 


FACTOHS    OF    Pnom-CTION 


States  am]  Cnrmdu;  iiuliist 


83 


rics 


in 


Great  «ritain,r^;;;;;;r;;:j,i;.„«"-''' ''  '""'"'^ 

Ihe  cxtTi.i.sc.  .,f  llie  f„,u.fi„„  „f  the  capitalist  is  „.,l 
Ie«  necessary  to  tl.  «,n.I.u.t  of  „„  i.ulustr  ^  ir  ^s,.   •  i  . 

tZTti """:,'  ""=  ^■^"^'^^-  "^ "-  '"-!''-"> 

o«^i    I     "■  •         "^  ""^  »"■«'"'•'  '"  •""»"  tl.e  place  of 
cap.tal  .s  .ns.gn.flcant.  but  it  nevertheless  exists.' 

24  Funchoi'.  m  complex  ,>ro<luc, ion. -Tlw  functions 
winch  are  necessarily  exercised  in  complex  ^^21 
may  be  summarized  thus:  prwiuction 

orLT'T  ^"""''"  "'■  *''"  ^""d'>ol'hr  (individual,  ffroun 
or  State)  who  controls  access  to  land  for  manufactuH  ^ 

In^tSi^r-^  *"  "^  "^  "■"^"""^  '"  nnne'Sr:^ 
2    The  function  of  the  ca/ntalkt  who  possesses  the 

SidS:;'^-'^"^*'-''^-^-^'^''^-'-" 

hislwotf""  °'  ^"'^  """'«'"  '"^-^  ^■'-  -rcises 

''t\tTabo"roV''' "'"t ''"''"'' "'•  ^'''■-^ -••" 
,    ,J  I  ^  *^''°"1''  "f  "'a"""!  labor: 

5  The  function  of  the  employer  or  or^awVr  of  th-> 
whole  en  erprise  who  interposes  his  credifand  Lcomt 
responsible  to  landholder,  capitalist,  superintendentrinj 
laborers  for  the  proper  condition  of  the  business  Th"s 
person  IS  sometimes  called  entrepreneur  or  undertale 

In  the  simplest  industrial  forms  these  functions  may 
all  be  rendered  by  one  person;  in  the  most  compHcS 
they  may  each  be  rendered  by  ^eat  numbers  orp™ 
The  vanous  categories  of  labor,  vi..:  manual.  superS^i 


24 


ECOXOJIICS 


tend.nff,  and  directive  or  employing,  cannot  be  rendered 
otherwise  than  by  persons  more  or  less  explicitly  com- 
petent to  exercise  their  respective  functions;  but  the 
functions  of  landholder  and  capitalist  imply  possession 
and  do  not  in  a  sense  necessarily  imply  personal  com- 
petence The  functions  may  in  a  sense  be  exercised  bv 
a  child,  by  a  lunatic  or  by  the  State;  but  they  are  not 
truly  exercised  by  these,  but  rather  by  the  persons  who. 
acting  in  a  fiduciary  capacity,  exercise  the  functions  in 
tneir  stead.' 

25.  Law  of  increasing  returm.—It  is  matter  of  com- 
mon observation  that  an  increase  of  labor  will  sometimes 
produce  a  proportionately  greater  result  than  the  pro- 
portionate result  produced  by  the  previous  labor.     This 
IS  not  true  of  all  points  upon  an  imaginary  scale  of  labor 
and  result,  but  it  is  true  of  all  forms  of  effort  and  result 
up  to  a  certain  point.     It  is  true,  for  example,  of  agri- 
cultural production.     A  given  quantity  of  seed,  a  given 
quantity  of  manure  and  a  given  amount  of  labor  will 
result  m  a  maximum  yield  from  a  certain  area  of  land 
l.ess  than  these  amounts  will  utilize  the  land  to  a  less 
extent  than  the  maximum,  but  a  curve  representing  the 
yield  would  rise  sharply  from  zero  and  less  sharply  as 
It  approaches  the  maximum.     The  same  is  true  of  me- 
chanical production.     A  machine  of  a  certain  maximum 
power  will  produce  its  maximum  only  when  it  is  fed  with 
luel,  oil  and  raw  material  up  to  the  limit  of  its  speed 
A  curve  of  its  output  will  approximate  to  the  curve  of 
agricultural  yield.     This  is  the  simplest  form  of  the  oper- 
ation of  the  law  of  increasing  returns.     In  a  larger  sense 
the  law  also  acts  in  the  expansion  of  industry,  and  its 
action  IS  especially  noticeable  in  those  industries  in  which 

•The  relations  of  the  fartun   of  produolion  to  one  aEothcr  are  D,„r,  », 
,.r.,|,ri«tely  diacmsed  uoder  the  head  of  Distribution.  '" 


FACTORS    OP    PRODUCTION  33 

capital  is  largely  employed  in  proportion  to  I.bor      A 

ever  the  output,  and  there  are  other  elements  whioh  Ar. 
n«n„o  ju,t,fa.,o„  of  i„d„.„i.|  co„l„„.„„„,  j  J" 

.  bus™,  ™pioyi„°;'i  "::'^,i  „7™;„'^^^^^^ 
.till  p.,„s«d  by  .„,„„  „ng4T™„  (rs""' 

•Ul,  tl,c  tacl,„„  of  ™„.ge„,e„i  o„  .  J.pg,  ,„|f 


26 


ECONOMICS 


brings  into  existence  the  organ  which  is  appropriate  for 
.ts  exercise  through  the  operation  of  the  obscure  law  of 
variation  considered  in  an  economic  sense.     New  sources 
of  raw  material  are  frequently  discovered  and  improve- 
ments in  the  technique  of  agriculture  and  of  mechanical 
industry  are  constantly  being  made ;  yet  the  various  fields 
Sr^  *"      ^™"^*''  °"^°"^'*  "°*  *'^"y«  ^y  the  same 
27.  Conditions  tchich  must  be  present— The  expressed 
or  implied  condition  in  all  statements  of  the  law  of  in- 
creasing return,  viz.:  that  other  things  being  equal,  such 
and  such  a  result  will  follow  certain  action,  must  be 
carefully  kept  in  mind.     What  is  increased  is  the  physi- 
cal output;  the  price  is  assumed  to  remain  constant.    In 
a  statement  of  the  law  the  prices  of  things  might  be  left 
out  of  account  altogether  except  for  the  fact  that  it 
IS  impossible  to  add  together  essentially  different  ele- 
ments like  material  and  labor  without  expressing  them 
in  a  common  denominator  denoting  value.    Thus  while 
the  increase  of  return  in  respect  to  physical  output  is 
limited  by  the  supply  and  by  skill  in  the  application  of 
means  of  production,  the  increase  of  return  in  the  sense  of 
value  IS  also  limited  by  the  extent  of  the  market  and  the 
movements  of  prices.     Indeed,  an  increase  of  product, 
unless  demand  increases  also,  must  induce  a  fall  in 
pnce.     Thus  increased  effort  may  meet  with  even  a 
diminution  of  value  in  exchange.     The  case  is  familiar 
enough  when  an  exceptionally  abundant  harvest  neutral- 
izes through  a  fall  in  price  the  gain  which  might  be  ex- 
pected to  accrue  through  an  additional  application  of 
capital  and  labor. 

28.  The  law  of  diminishing  returns.— When  the  law 
of  increasmg  returns  has  reached  the  limit  imposed  bv  a 
limitation  m  the  supply  of  raw  material,  a  limitation  in 


FACTORS   OF    PRODrCTIOX  37 

tlie  supply  of  labor  or  in  the  i)o«  ers  nf  tl,    1  . 
l"nitati.,„  in  the  sn,,„Iv  "f  j  {  '    ''''""■'^'•'*>  «••  « 

'l"im]  for  expaLtrn'of  •''''""  ''""'  "^  '''''"  '•*^- 

nor  diminishes;  itt™^„,  ^n^Lr^  ""'''''  ^"'^^^-^ 

whenit   Tally  S2tt/^r,'"'  "'^'^  "^  '^°"'^"- 

If  theiaborer'f:rs\rr,fVriTer '"^^^^ 

power  he  breaks  down  and  cannot  wo"k  a^  TT 
machine  is  forced  above  the  .n^^H  f„  u-  ^  •  ^^  * 
signed  and  constructed  it  wii?l      Z       '"^  '*  ^"^  ^'^ 

to  the  profits  anH  if  ti,«  ^crease  out  of  proportion 

•icpiunis,  ana  It  the  process  IS  continiipH  fi,«>i,    • 
may  come  to  irreparable  ruin        ™"*'""''*'  ^'^^  l'»«ness 

Such  is  the  law  of  diminishing  returns     Then,    * 
conspicuous  case  of  its  operation  is  toT  found  inT. 
exploitative  industries.     In  coal  minil  f„  1   ^ 

curve  indicating  production  risesTarp?;t.'"'""P'''  * 
der  the  influence  of  the  law  Tf  -^       ""  ^^'■°  "»" 

there  isaperiodd^ril'jihlrS^^^^ 

and  "nderground"ort  ofTS^^^^^    ^^"*"''«- 
As  still  more  remote  seams  are  attSd  r"'"'  '"  "''*• 
become  more  and  more  rstr«ndtffieuU  ' 
have  to  be  sunk  and  fresh  seams  have  toU'  '?"^*'' 

Eventually  the  mine  produces  less  ^djet  ^1""- 
donment  becomes  expedient.  If  the  area  Tli  T 
-c  of  supply  of  coal  for  an  induVrLT  d '  trt.  tlie 


38 


ECOXO.MICS 


limitation  of  supply  caused  by  the  gradual  exhaustion 
of  the  mines  will  tend  to  check  the  increase  of  return  to 
mainifacturiiig  enterprises,  and  to  extend  to  them  the 
influence  of  the  law  of  diminishing  returns. 

Another  conspicuous  case  is  that  of  agriculture.  Cul- 
tivation by  means  of  successive  doses  of  labor  and  capital 
results  in  increasing  returns  up  to  a  certain  point. 
When  the  point  of  maximum  return  under  the  new  con- 
ditions of  agricultural  knowledge  is  reached,  any  fur- 
ther application  of  labor  and  capital  would  result  in  a 
smaller  proportionate  return  than  the  previous  doses. 
In  other  words,  the  law  of  diminishing  returns  would  be- 
gin to  be  effective. 

When  we  come  to  discuss  the  question  of  rent  we 
shall  see  that  the  reason  for  the  emergence  of  rent  lies  in 
this  law.  If  it  were  possible  to  produce  constantly  in- 
creasing quautities  of  foodstuffs  by  the  application  of 
labor  and  capital  to  a  small  area  of  land,  rent  for  land 
for  purposes  of  cultivation  could  not  arise  because  one 
piece  of  land  would  serve  as  well  as  any  other.  There 
would  be  no  differential  advantage  in  the  cultivation  of 
areas  of  varying  fertility,  and  therefore  there  could  be 
no  rent.  Similarly  multiplication  of  machinery  would 
be  useless  if  the  product  of  the  operation  of  one  machine 
could  be  carried  to  infinity. 


CHAPTER    IV 

THANSPOHTATIO.V    A    FACTOR    IN    PRODUCTION 

In^a^ll  ^ZV'"''""  ""  """  '""'^""  '■"  production.-. 
In  all  productive  operations  transportation  may  be  said 

said  Jr^T-"  ''"*  '^  *°  "'y'  *»-*  -  thing  cannot1,e 
sa.d  to  be  produced  until  it  is  taken  out,  and  to  be  taken 

ttnlrtat.?  'T^-'^^''-  ^"  '"^^  extr'active* i  tts: 
tlZ^Uu  ^^^^'  "  '''y  ^^'Se  P«rt.  especially  in 
hose  which  are  concerned  with  heayy  commodities  In 
oggmg  operations,  for  example,  the  transportat  on  of 
the  logs  from  the  place  of  the  "cut"  to  the  water  "s  a 

ber  lands  th  s  ,s  usually  now  done  by  machinery  In 
some  coal  m.nes  electrical  trolley  line!  conv  y  the  coa" 
m  cars  from  the  "face"  of  the  cutting  to  the  bot  om 
of  the  pit.  occasionally  for  two  to  three  miles  The  c3 
-  then  hoisted  by  other  mechanism  to  th  pi^^he'S 
Transportation  may  thus  be  regarded  as  a  specia  branch 
of  production  m  which  the  extractive  industries  and  the 
manuf acturmg  industries  are  equally  concerned. 

30.  Applied  to  manufacturing  industries—In  the  in- 
terior management  of  factories  transportation's  an  im 

em  sr td  '''^  """?^'"^"*  °'  factori":;:;!! 

em  design  and  equipment  is  such  that  the  amount  of 

nioving  about  of  heavy  material  within  the  factory  is 

educed  to  a  minimum.     Every  movement  costs  som 

tl..ng  m  labor,  material  and  time.     An  ideaTa  rZe 

riTd'ofThe  1 1"  "'^  T*™"'*  ^'  '"^^  --  -s 

one  end  of  the  factory  and  the  emergence  of  the  fin- 
i9 


30 


ECOXOillCS 


ished  prmluct  at  the  other;  or.  the  factory  being  arrange.1 
in  a  circle,  at  the  point  of  entrance. 

In  another  sense,  transportation  is  of  the  first  im- 
portance m  production  because  the  most  economical  pro- 
duc^,on  takes  place  when  there  is  easy  communicaLn 
both  for  the  raw  materials  and  for  the  finished  product. 
In  the  case  of  heavy  goods  this  is  indispensable,  and 
^em  ly  an  the  case  of  articles  in  the  manufacture  of 
which  two  or  more  heavy  raw  materials  enter.     In  the 

that  the  coal  and  the  iron  ore  should  both  be  readily 
accessible.  The  Scottish  iron  fields  were  the  firsMo  b^ 
«p bited  by  means  of  coal  because  the  coal  fields  wer^ 
m  the  immediate  vicinity.  The  English  coal  and  Iron 
deposes  are  similarly  close  together,  and  the  same  I  Z 
of  the  Pennsylvania  deposits.  The  Han  Yang  iron 
works  on  the  Yangtse  Kiang  in  China  are  situatedT 
tween  iron  and  coal  fields,  each  five  miles  distant  from 

Not  less  important  is  it  that  means  of  transportation 
should  exist  for  the  finished  product.  DocksTnd  rS 
way  sidmgs  provide  such  means  for  all  large  manufac- 

tS  r?™';    ^*  ^  ^^"  ^""^  works'Ibove  men. 
ioned,  steel  rails  are  shipped  upon  ocean  steamers  from 
wharves  at  the  works  within  a  few  yards  of  the  mX 
where  the  rails  are  rolled.  '*' 

Where  means  of  transportation  do  not  exist    pro- 
duction on  any  considerable  scale  is  impossible.    ExC 
sive  mineral  deposits  are  reported  to  exist  in  U™ 
and  m  the  region  to  the  north  of  the  Barren  T  „nfe 
Northern  Canada;  but  their  e.ploilfirmu^rat;; 
n^eans  of  transportation  of  supplies  into  the  reg^ 
and  of  raw  materials  or  finished  products  out  ofTem 
So.  also,  the  coal  deposits  which  are  reported  to  lie  undTr 


TRANSPORTATION    IN    PRODUCTION  si 

« *=  p... .,  «„.  fc  city  ™„.,  fc.  b^,r  "£ 

,T  .r  .?^   ?*"'™'"°  "f  "»noi»ic  life 


32 


KCOXOMICS 


by  the  wheelbarrow.  Wherever,  as  in  all  of  these  coun- 
tries, animals  are  scarce  and  costly,  human  transporta- 
tion IS  the  i-ule. 

Camels  are  used  extensively  in  Northwestern  China, 
in  Transcaspia,  in  Egypt,  in  the  Soudan  and  in  the 
Arabian  desert.  Oxen  are  used  in  South  Africa.  India, 
Italy.  Germany,  extensively  in  the  province  of  Quebec 
and  occasionally  in  the  Prairie  provinces.  Horses,  mules 
and  asses  are  used  everywhere  excepting  in  the  south 
of  China,  where  animals  are  rare. 

In  cou.itries  where  there  are  great  interior  waterways, 
like  China,  Russia.  Holland,  Canada  and  the  United 
States,  a  large  part  of  the  movement  of  goods  and  per- 
sons in  these  countries  has  been  accomplished  from  the 
earliest  times  by  means  of  small  boats  and  rafts.  Rafts 
may  be  seen  in  great  numbers  on  the  Danube  and  on  the 
Rhine,  and  occasionally  on  the  Canadian  rivers.  A  more 
usual  method  now  is  for  logs  to  be  enclosed  in  booms 
m  the  form  of  a  "bag"  and  for  the  mass  to  be  towed 
by  a  steamer.  Immense  bags  of  this  kind  are  often  to 
be  seen  on  the  Cxreat  Lakes.  Dug-out  canoes  may  still 
be  seen  on  the  Dnieper,  for  example. 

The  prairie  trails  of  modern  times  are  similar  to  the 
early  roads  of  all  scantily  peopled  countries.  They  are 
not  constructed  in  any  sense  and  they  cost  nothing  for 
maintenance  because  they  are  not  maintained.  The 
great  roads  of  early  times  were  military  roads,  although, 
of  course,  they  were  used  for  commerce.  Many  Roman 
roads  are  still  in  use  in  Southern  Europe  and  in  Great 
Britain. 

The  practice  of  merchants  who  transported  their  goods 
by  land  in  Europe,  until  the  middle  of  the  nineteenth 
century,  was  to  form  large  caravans  composed  of  manv 
carts,    sometimes    accompanied    by    an    escort.      The 


TRANSPOUTATIOX    IX    PRODUCTION  33 

Hudson  Bay  Company  in.itate(l  thi.  practice      Fverv 

"•peg   the  company  sent  out  from  Fort  Garry  a  bri 
«ade  o    some  two  hundred  lied  River  Carts  Xh  ca 
ned  a  large  part  of  the  total  annual  quantity  of  fur, 
to  St   Paul,  through  which  they  were  sent  to  Londo" 

^,  fhVlf "'  "'"'"""*  *''^^^  -""y  occasionally  be  Ln 
on  the  Northern  Canadian  prairies  a  train  of  "fightS" 
or  wagoners  carrying  supplies  to  settlements  leml 
from  railway  communication.  These  "freighters"  are 
generally  ,«.//,  or  half-breed  Indians.  Priof  to  'he  7 
vas,on  of  the  Canadian  Xorthwest  by  the  rai Ly   the 

t.on.     The  disturbance  of  their  economic  equilibrium  bv 

we^ttSir  °"^  °^ '''  ~  °^ '-  «-"^  ^-'^ 

F.In'   ™P'°r^'"™t   °f   the   main    roads   throughout 
Europe  an.l  Great  Britain  towards  the  beginningTf  the 
Sor  T  r"'*  transportation  to  aV^itch  oj 
pertection.     The  service  of  the  past  was  well  organized- 
by  means  of  this  service  it  was  possible  for  travek     to* 
proceed  at  any  hour  and  to  travel  day  and  nLht  „t  th^ 
rate  of  f        so  to  over  100  miles  a  daracc^       h' 
tte  horsef         '  ''"'  *''  '^'^"™^*^^  °^  "^  -"ids  Inl 
During  the  eighteenth  century,  also,  canals  were  con- 
tructed  connectmg  the  rivers  and  lakes  and  providTg 
for  the  transportation  of  heavy  goods.     The  railway  and 
he  steamship,  coming  as  they  did  practically  together 
n  the  second  quarter  of  the  nineteenth  century,  rfvolu 
unused   transportation   in   respect   to   time.  "^  Except 
n  t^s  sense,  technical  progress  did  not  greatly  diS 
.sh  the  cost,  saving  only  „hen  great  distances  ha^^o 
be  overcome;  but  they  added  greatly  to  the  convenien  ^ 


34 


ECONOMICS 


of  traveling  and  rendered  it  less  fatiguing  and,  in  gen- 
eral, less  dangerous. 

The  economic  effects  of  the  improved  means  of  com- 
munication were  due  principally  to  the  saving  of  time 
which  they  rendered  possible.  This  saving  of  time 
meant  an  increase  in  the  velocity  of  the  circulation  of 
capital,  and  increased  velocity  of  the  movement  of  capi- 
tal had  the  same  effect  as  an  increase  in  its  amount. 

88.  Opening  nno  markets.— When  a  new  transporta- 
tion route  enters  a  rural  district  previously  unserved, 
except  by  primitive  means,  it  opens  up  new  markets  for 
produce  and  therefore  tends  to  increase  local  prices  for 
that  produce  because  it  brings  into  the  field  new  areas 
of  demand.     But  a  new  transportation  route  opens  up 
opportunities  for  competition  by  external  traders  with 
the  local  merchants,  and  thus  tends  to  diminish  the  prices 
of  goods  which  are  subject  to  external  competition. 
Merchants  in  small  country  towns  have  often  protested 
against  cheap  weekly  fares  being  announced  by  railway 
companies  on  the  ground  that  these  induced  their  cus- 
tomers to  go  into  the  larger  towns  to  do  their  shopping. 
In  some  cases  the  railway  companies  have  withdrawn 
the  low  fares  in  consequence  of  these  representations. 

In  the  market  centers  connected  by  a  new  transporta- 
tion route  with  the  rural  districts  through  which  the 
route  passes,  the  prices  of  produce  tend  to  diminish  be- 
cause of  the  new  areas  of  supply  which  are  brought  into 
the  field  by  means  of  the  railway. 

The  g  dual  development  of  transportation  systems 
through  the  steamship  and  the  railway  served  by  anil 
interlocking  with  more  primitive  means  of  communica- 
tion has  resulted  in  a  complicated  network  of  agencies 
which  brings  the  produce  of  the  incessant  labors  of 
Chinese,  Japanese  and  Hindu  peasants  to  every  table 


TaAXSPO»TAT,„.V    ,.V    PKODUCTION  „ 

Lbor  „  .,„  ..ITS,  of'SS" .''I  r^V 
wav  rear-toH  K^»i,  ^       capital,  and  has  in  this 

resources  whJh  ecu W  ^ol  nth  '"'"!."'  '"  •■^''''''  "»*"™1 
andithasgiventriaborerr^T'*  ''?"  "^^^  '^'''^''^d. 
wise  would  have  had      Wi^''  """"■'*  """"  ^'  °'^"- 

munication.  wages  adva^  ™'"'?"'  '"'''"''  °^  «""- 
from  the  s^me  cTu^e  treHe  1""'  'T""'''  '"*''-^'' 

tion  tends  to  increase  thev  1        ^P'"''^'^  communica- 

price  rises  to  a  ErwSchil  ""■"'  '""'^  ""*''  *''« 
sometimes  cauJTrlrJlf'tr':^'''^'''^  '"'J  -en 
value  of  the  land  i^the  A^lr  ^'  '""'"'*  ''^  *he 

Bukovina  and  rJ!!^XS;^';:1^ Z^'^^'^' 
way  rates  on  the  Ai.«tr;.„      -i  ^       ^'^^  ^°^  rail- 

cause  of  the  er^gr^torfro^^^^^^  ""  ""  ™P''^-* 
which  began  in  1895  17.^    u  I  P™''"""''  *°  Canada 

less  actively  since  S  LV  '"  "'""""^'^  '"°-  - 

-rban  regions  cht[:rar:it/jelTt"''"^ 
mcreases  rents  in  the  suburban  dTstrlr  On    7^'  ""'^ 
«'ns  for  the  rise  of  rents  in  the  r        .-  °"^°f  tJ'^ea- 
';as  been  manifest,  es;;!;^  ^Le  mtVth?-  7''^ 
•levelopment  of  radial  svsten\«  nf  7  '"^*^"°'" 

I'ared  with  the  dev^mlt  of  «  'T^'''''''"'''  *^  «""" 
the  city  bo„ndarie"Xt"/w  "  17'  """'^^  "'*'''" 
which  l^gan  with  the  ho  eSr  in  .h  V''!  '"^''""'y' 
teenth.ntur,wase„orI.X-:tSS----: 


SA 


ECONOAIICS 


tion,  first  of  mechanical  and  afterwards  of  electrical 
power.  The  street  railway  has  renJere<l  possible  the 
spreading  out  of  the  American  city  over  a  wide  area, 
and  has  thus  delayed  the  complete  adoption  of  the  tene- 
ment-house system  with  great  advantage  to  municipal 
hygiene. 

Among  the  economic  effects  of  the  development  of 
urban  transportation  have  been  the  great  advance  in  the 
price  of  land  in  the  centers  of  cities,  an  increase  also  in 
the  outskirts  within  and  immediately  beyond  the  mu- 
nicipal boundaries,  and  a  considerable  diminution  in  the 
value  of  land  in  the  intermediate  areas.  This  last  is  tem- 
porary because  as  the  population  grows  round  the  cir- 
cumference and  as  the  utilization  of  the  central  areas 
raises  the  price  of  land  in  these,  the  inner  ring  of  "dead 
land"  will  be  gradually  encroached  upon,  and  its  value 
must  advance.  Such  movements  in  the  prices  of  land 
however,  depend  not  exclusively  upon  the  improvement 
m  transportation;  this,  indeed,  is  in  all  cases  only  a  con- 
tributory cause.  Other  causes  of  the  fluctuations  in  the 
value  of  land  are  discussed  elsewhere.  (See  Part  ITI- 
Chapter  VII.)  ^  ' 


I 


CHAPTKR   V 

FIRST    STAOK    IV    PRODirCTIO.V 

87.  Stage,  in  .  r  process  of  production -The  fir,» 

«r3us„f   n      "/."P'"'*"*-™   or   extraction.      LarRe 

culture     T,r«t  J  c^'"''r'"T  *''"'"•  ''"'^  '"  "«"- 
industries  "'^  exploitative  or  extractive 

n>o?oi\s:%C/;;J'T«  P^'x^-d  they  are  in 
are  not  necessIrSv  1-/.'"°?"""*= '"^ '""'"'«'" 
on  the  sitTofT-;  eTa^  rittul"'^''^  '-"' 

or  less  Spia'rsrortr'^^'?'"^'^ 

Hides,  for  examnlP    J  T  ^^""    Production. 

tothe  UnLdTat  and  Sdri  tr,  ^^"^'■^• 
tries  they  are  tanned  «nH  ,fT  ^  ^''^  '"""  ^u"- 

finishin/wheXttt^^^^^^^^^^ 

poses.     After  having  Wn  finfshei  ther  •"  P"" 

t,  "ccii  nnisned  they  are  imported 

87 


38 


ECONOMICS 


...to  the  Uiiited  States  or  Canada  and  are  there  made 
up  into  Gladstone  hags  and  leather  goods  of  a  like  char- 
acter. In  such  a  case  tiansiwrtation  enters  largely  into 
production.  " 

When  goods  are  finished  they  must  be  placed  upon 
the  market,  and  we  may  regard  the  third  stage  of  pro- 
duction as  the  marketing  stage.     This  stage  also  in- 
volves transportation  and  sometimes  involves  as  well 
the  services  of  intermediaries  apart  from  the  service  of 
those  who  have  been  actually  engaged  in  production. 
38.  Exploitation  or  the  extractive  stage  of  produc- 
tion.—The  raw  materials  of  all  products  are  obtained 
from  the  land,  from  the  water  or  from  the  air,  or  in 
other  words,  from  nature.    In  the  language  of  economic 
writers  the  expression  "land"  is  used  as  svnonvmous 
with    nature."    This  usage  arose  from  the  circumstance 
that  the  early  economists  were  inhabitants  of  countries 
the  predominant  occupation  of  which  was  agriculture 
and  thus  land  and  nature  were  regarded  as  identical 
and  the  term  "land"  was  held  to  include  all  the  resources 
of  nature.    In  the  process  of  explmtation.  the  minerals 
the  plants   (including  trees),  the  fish,  and  sometimes 
the  gases  of  the  atmosphere,  are  taken  from  the  places 
m  which  they  are  found  in  nature  and  moved  to  more 
or  less  distant  places  where  they  become  the  raw  ma- 
terials of  further  processes  of  production. 

Perhaps  the  most  important  incident  in  what  has  been 
called  the  "ascent  of  man"  is  his  harnessing  of  the  forces 
of  nature— as  mechanical,  chemical  or  electrical  en- 
ergy—and the  exploitation  of  nature  by  means  of  these 
forces. 

In  all  ages,  knowledge,  or  science,  has  played  a  great 
part  in  this  exploitation,  and  no  doubt  knowledge  has 
sometimes  been  used  for  the  purpose  of  exploiting  la- 


FIRST   STAGE    IN    PRODUCTION  39 

borers  as  well  as  material.!      Ti, 

cradles.  Modds  rf  tf,7  1?  '"''  ""  ^^'^'  "'""^en 
Egyptian  tont.  T  eTneS"""  '"" /"""''  '" 
Japan  for  rolling  uTin'll  F  ^^  "  "*'"  "^^'^  '« 
^truction  the  h^f/LtXtr^'^^  ""'^^  -- 
r..et:^t^^^^^^^^^^  ^-  the  largest 

in  aneient  tLes  of  storS'of  maJt  '"'T'  ^''^"^""^ 
-n.ls  suggests  that  tier  ^^iri  t  ^'■'°™'^ 
knew  how  to  utilise  natural  wT  and  whl  T'  "'° 
tives  of  prudence  nf  5.v„.;        ^  *"•  '^'n  mo- 

tery,  kep't  tirknord^rfl'ST'^r  "^'"^^ 

:tXt  Xrvt^^  exploitativetrS  ag^ 

ent  ages,  itlLTnTedTp^S  IstT'T  ^''^'^ '" 
occupation  all  othpr  „.  ^^^f.'^^'*  f  the  only  productive 

rivatL.    Thl!hout    7     ,T  '""^  '^^^^'^^'^  ««  de- 

Plain  of  Europe?;;   g  LTpatoTc  ''l^' ■'''''''' 

t-ei.z^--jnirs^r^*"^"-^ 

prfcti  al  vT  tlTof  tT  '°  ^-  ^'"^  ^'^^  -"-tor  in 
freedom  W^^^tste^^or  ^^^t^- 
tions  were  partly  personal-thft  ;     J'  ^  "^^'S"' 

render  persLfseLcetLyt^^^^^ 

ctssrr  j.^-r  -  >-erLi\i^st 


1^ 


40 


ECONOMICS 


I 


owner  or  to  the  owner  of  the  land  a  more  or  less  definite 
quantity  of  goods  or  amounts  in  money.  Under  this 
triple  obligation,  medieval  agriculture  was  conducted. 
The  system  was  sometimes  veiv  oppressive;  at  all  times 
It  was  sub^rersive  of  human  liberty  and  personality;  but 
It  was  not  unproductive.  The  peasant  was  inured  to 
hard  labor. 

40.  Passing  of  compulsory  cultivation.— Thi  tran- 
sition from  the  obligatory  phase  of  cultivation  to  a 
contractual  or  commercial  phase  took  place  in  different 
countries  at  different  epochs.    Bv  the  end  of  the  four- 
teenth century  in  England  obligatory  cultivation  had 
practically  passed  away;  and  the  class  of  free  hired  la- 
borers had  made  its  appearance.    In  France  compulsory 
cultivation  did  not  pass  until  the  revolution  swept  it 
aside;  in  Germany  it  remained  until  the  beginning,  and 
m  Russia  until  the  middle,  of  the  nineteenth  century 
Obligatory  cultivation  in  the  case  of  negroes  remained 
in  the  South'        States  until  the  close  of  the   Civil 
War. 

The  system  of  obligatory  cultivation  of  land  had  two 
sides.    While  the  peasant  was  obliged  to  cultivate  and 
was  not  permitted  to  leave  the  land  allotted  to  him.  the 
owner  of  a  peasant  could  not  as  a  rule  remove  him 
from  the  land.    There  were  exceptions  in  practice  to  this 
rule.    In  Russia,  for  example,  peasants  were  sometimes 
sold  without  land,  although  the  practice  was  always  dis- 
couraged and  sometimes  prohibited  by  the  government 
The  owner  of  the  peasant  had  also  his  series  of  obli- 
gations, not  merely  to  his  superiors  and  to  the  state 
but  to  the  peasant.    The  performance  of  these  obliga- 
tions was  not  invariably  enforced;  but  the  theory  was 
that  the  owner  of  peasants  was  responsible  for  them 
If  a  deficient  harvest  occurred  and  his  peasants  were  in 


FIRST   STAGE    IX   PRODUCTION 


41 


land  ownership  crent  infn  ,  .  "'r*"°"-      Commercial 
afterward  conCS  by  staS  "  ^"^'"'''  ""^  '*  -- 

an^^Jm;:^^^^^^^^^^^  '''^  ^^-  of  the  peas- 

that  is,  he  could  seilTt  as  IL  TuT'^  '^'  '»"d- 
he  sold  or  bought  subieet  to  r'  ^"^  ^""^^^  '*'  »>»* 
-as  occupied.  Vte„Sn:w^  TT""*  '"'^*  ''"''  '* 
cultivated  it.  When  tZT  'I  ^  *''^  P^"'"*"*"  -ho 
he  liberated  himself  bJ?"  """'  ^'^''"'^^  «>•  -hen 
frequently  didTLglandTfhrf"'''"^  ''""^'  «^  ''^ 
the  peasant  abandoned  his  ri2  t  J  „  ''"*''  '''"*"'7' 

words,  he  forfeited  his  nr.  •      .        "P""*^>'-    I"  °ther 
access  to  the  meanVo    n  ^"r  ^  '"'"'^'"■^^'^  "«ht  to 
recover  tWs  right  by  pa^Lg^Tt  "  Thu^  T' J  ""'^ 
owner  of  the  neasanf  W         1         ^""^  ^''^  former 
When  the  peasant Tf   theZV  ^  °""^^  ''  '"^^  ^-d. 
improve  his  posU  jf  eSe  7    "^"^'  P^'"''''?''  *« 
iapsed,  and  wL  he  reSd  upon  ttld^^  ^'^  '""'' 
the  prevalence  of  commercial  own      u-         '  ""^'"^  *« 
him.  his  claim  came  to  bStatirbP  "T""'  ''''°"* 
at  variance  with  the  oldercustoms     ""  ^"^"''"^  ""'^  ^^ 

traittir^rrrrcr'"^^^^^^^^^ 

siderably  to   the   holdlS  of    ""T""'*^  ^^^'^  «»>- 


I 


4i 


ECOXOMICS 


closure  was  defended  on  the  ground  that  it  resulted  in 
increased  production. 

In  Russia,  under  the  Eniancii)ation  Acts,  the  peas- 
ant became  the  owner  of  a  portion  of  the  land  he  had 
previously  been  cultivating.  After  the  emancipation  of 
the  peasants  in  Western  Europe  the  owner  of  the  land, 
now  relieved  at  once  of  the  burden  and  the  privilege  of 
joint  ownership  with  the  cultivator,  could  have  his  land 
cultivated  by  hiring  his  formerly  ohligatory  but  now 
free  cultivator  to  cultivate  it  for  him  for  fiied  wages, 
the  produce  of  the  land  after  the  payment  of  these 
wages  belonging  to  the  owner  of  the  land;  or  he  could 
let  the  land  to  the  peasant  at  a  fixed  rent,  the  produce 
of  the  land,  lesi  this  rent,  belonging  to  the  peasant. 

The  ownership  of  land  formerly  held  under  the  con- 
ditions which  have  been  described  thus  became  commer- 
cialized, and  land  came  to  be  regarded  as  a  commodity 
to  be  bought  and  sold  like  any  other  commodity.  The 
species  of  land  worship  which  the  agricultural  com- 
munity had  developed  received  a  rude  shock  from  the 
profanity  of  treating  land  like  the  movable  products 
of  cultivation.  Increase  of  the  obligations  of  the  peas- 
ants and  the  commercialization  of  land  together  pro- 
duced the  state  of  mind  which  resulted  in  the  numerous 
peasant  revolts  in  France  and  Russia  in  the  eighteenth 
century.  The  view  of  land  as  common  property  never 
wholly  died  out  in  any  country.  From  the  beginning 
of  the  m'neteenth  century  the  resumption  of  national 
land  ownership  was  advocated  in  Great  Britain,  and 
later,  in  the  seventies,  the  late  Henry  George  began 
his  propaganda  in  California. 

The  characteristic  economic  incidents  of  medieval 
land  ownership  were  obligatory  labor  and  immobility 
on  the  part  of  the  peasant.     In  certain  phases  of  the 


FIRST   STACK    IS   PRODUCTION  43 

onJy  because  he  was  Zner  oh  ""'  """"  "^  *''^  '""'^ 
it-     The  characteris  .  ?  ^'"'''"*  ^'■'"'  '^""'^"t^d 

ern  period  ofTandol;!"'"'"  "''''^"'''  "^  "'«  "^^- 

n»ght  be  denied  acrsot'^  'I!  ""^""'   '""""*°'- 
surrender  to  the  coZunitv  ^'."'"■"  P'""?"''^''  *« 

of  his  labor.        '°'^'"""'*>^  """"^  portion  of  the  product 

ownership  there  1  Li:?"'""  T^'"^  °^  '-d 
the  land  was  held  by  the  t  b  ,Tf '  7  ""'^''  ^'''^'' 
tribe.  Thev  mav  blvri  ill  '  ^'  ^^'^^^'  ^o""  the 
quired  properr  but  ^b  f  •.  'j'f  """  '"^''^'"^  -^  - 
^o  the  cLrlt^'be,:  4  o' t?e  tr  '''  Tl  ''^'""^ 
tribal  chief  controlled  thf .  3    '''  ^  '''''°^^-    The 

the  tribe  or  ckn  onlv    J        r"*'";"  °^  '^'  >«"d  of 

did  in  Europe  genetlW^^^^^^^^^  '^^'^'•-^'^''-  ^  ^hey 

ages,  the  owLslp  of  t'^ib  an/ b  ""  °'  '''  ""'^''^^ 
ized  in  the  same  mLnJTtu  '^'""^  commercial- 

had  not  been  WbT  Th,s  °""?''P  °'  ^'*"'J  ^^^^^ 
went  on  gradulny  in  tht  ^^Sr^Tr?!^^*'"" 
of  Scotland  and  in  Ireland  ^fr    It  ^  highlands 

vivals  or  memories  of  tHb„ I  '  ^^'''  ""'""'"^'J  ''"'- 

relations  deca;rthe  hfef  oTr'T""  "^^  '""^  '"^'^^ 
of  the  land   and    th    7  '''""  acquired  control 

-a^ed/the  otntshipS'r/K^      °'"^''*'°-  ^avinj 

^3.  06K.r;  f  ?.:L  ;;:^^^^^^^^^    commercialized^ 

lummeraai  land  ownership. The 


44 


ECONOMICS 


above  is  a  rough  sketch  of  the  origin  of  modem  land 
ownership.  It  explains  the  hostility  toward  landlord- 
ism of  those  races  over  which  tradition  has  a  strong  hold. 
To  the  Irish  peasant  and  the  Highland  clansman,  the 
purchase  and  sale  of  land  is  a  kind  of  infamy;  and  re- 
moval from  their  holdings  because  they  did  not  pay 
rent  was  a  gross  injustice.  But  such  difficulties  arose 
almost  exclusively  in  those  areas,  in  which,  from  want 
of  natural  fertility  (as  in  the  highlands  of  Scotland), 
or  inferior  cultivation  together  with  absence  of  fertility 
(as  in  some  parts  of  Ireland),  the  land  had  little  com- 
mercial value  as  agricultural  land. 

44.  Advantages  of  commercial  land  oxmersMp.— 
In  those  parts  of  Western  Europe  (including  the 
greater  part  of  England  and  of  the  lowlands  of  Scot- 
land),  where  the  land  was  of  relatively  high  fertility  and 
where  it  had  been  well  cultivated,  the  agricultural  peas- 
antry found  the  commercialization  of  land-owning  by 
no  means  as  disadvantageous.  The  landowner,  even  if 
he  had  no  means  independently  of  his  land  ownership, 
■was  able  to  borrow  upon  the  security  with  which  his 
commercial  ownership  endowed  him,  to  provide  houses 
and  to  undertake  improvements  which  the  cultivator 
could  not  undertake  through  lack  of  agricultural  cap- 
ital. * 

The  system  of  tenant  farming  thus  grew  gradually, 
and  the  greatly  increased  production  which  resulted, 
on  the  whole,  justified  the  system.  There  was  security 
of  tenure  during  the  period  of  the  lease  (in  Scotland, 
generally  nineteen  years)  and  there  was  freedom  of 
movement.  The  inferior  skill  of  the  agricultural  laborer, 
together  with  the  want  on  his  part  of  agricultural  capital, 
rendered  it  difficult  for  him  upon  a  small  holding  to  meet 
the  competition  of  the  large  farmer,  and  still  more  diffi- 


FIRST   STAGE    IX    PRODUCTION 


HlIl!!."'f**'«'*°ft"eAmer 


4S 

a  surplus  of  wheat     tI  „?    7'  ''*''  ^^^"  ?''«'"<''"« 
farmer  wJ,o  eiZ\L7      '"^^''»t»«e  lay  with  the  large 

«cient  '^XZ:nsT:ut'"'  r' '"'  ^"'- 

with  the  large  landoin  *""'"""  8°°^  stocl ,  and 
sufficient  to  proWde "he  L  ^  5"'  ''^^''  «'  "-«"" 
buildings,  to  effect  Linn  T'  ^""'"'  ^'*''  '^'^^e 
land  in'the  fol^orZ^  TTT  "P°"  ^"^ 
on  the  whole,  appeared  Uhli'  ,  .  ^"^  ^^^  '^^ults, 
siderable  siz  ;  ^nd  Thu  t  t '■"'I  'T  '"'"''  "'  «"" 
Britain  became  an  imnor!  .  ?*  ^""""^  '"  ^veat 
class,  while  rfr^^r^^^Vc^VT""^  "^"■*°-*' 
either  rose  into  the  ^sufon  of  ?      'T       "'"""  '"*'' 

into  t,  si.  Of  c;"riis::r.at™  °^  ^^-^ 
the^tttt:'fttrT'"""^™--^''- 

dustry  began  it  ,ji  ^'.f  *""'*''  ^^nt^^y  the  factorv  in- 
ter cCrau  Vo7Thf  sir"^  '"'^^'^  ''°-  *''^^«"- 

during  the  same  pert,  th"^"'"  ""^^''  «''^'-«'^'  ^^e 
grain  both  in  Europe  aitr'^'T/^'^^'^*'""  "^ 
profits  from  the  fLinl  rnif^'"'"  ^"^  *'"^''"'"''"'ed 

diminished  empLvmrt  L  '"T  ""''•  *''"^^«'-«'  *« 

the  beginning  ^o^rilrlT^^^^^^^^^^  ^" 

short  period  during  which  the  nnV  J^  ^"^  '^'''  » 
greatly  in  Englan^d,  o  ^  toTe  "i  ?* '''^^"''^'' 
the  farmers  prospered  nlfl.  *he  .Napoleonic  wars; 
Peace  changed  Tllf     i  """'  '^^''  ""'^  '^"t''  ™«e 

about  182oX  a^iutraTlah''""''  ''"  ^'''■P'^'  -^ 
industrial  towns  ^  '™""™^  ^''^°'-^'-  ^as  forced  into  the 

iS"Ss*  whr;!rT.  '""^  ^^^*-  «^  *e 

-as  no  more  Wablc  toT      T  *'**  "'  ^^-P- 

ropean  systems;  yet  the  demand"        *"''•  *''''"  '""^  ^- 
.  y  t  tne  demand  for  agricultural  labor 


46 


ECONO'MICS 


in  America  became  urgent.  High  wages  were  offered 
and  inunigration  began  to  draw  off  agricultural  labor- 
ers from  Europe.  The  alteration  in  the  land  system 
and  the  offer  of  free  homesteads  in  the  United  States 
greatly  increased  the  attraction  to  emigrants,  and  the 
opening  up  of  the  wheat  fields  of  the  West  was  the 
result. 

46.  Return  of  the  small  cultivator.~The  growth  of 
these  wheat  fields  meant,  however,  the  decay  of  West- 
ern European  agriculture  for  a  time.    The  attempt  to 
grow  wheat  upon  land  which  required  constant  enrich- 
ment in  competition  with  wheat  grown  upon  land  whi.h 
required  no  enrichment  at  all,  was  successful  in  so  far 
as  he  yield  per  acre  of  the  former  greatly  exceeded  the 
yield  of  the  latter;  but  the  wide  area  of  the  new  land 
brought  into  cultivation  and  the  aggregate  production 
m  spite  of  the  inferior  yield  per  acre  drove  the  large 
farmer  in  England,  for  the  most  part  and  for  the  tinie. 
out  of  wheat  growing  into  sheep  grazing  and  cattle 
breedmg.  and  the  small  farmer  into  dairying  and  mar- 
ket gardening. 

This  condition  brought  the  day  of  the  small  cultivator 
round  again;  because  animals  in  settled  countries  must 
m  he  main  be  stall  fed,  and  stall  feeding  involves  labor 
and  attention.  The  growth  of  the  urban  centers  led  to 
great  increase  ,n  the  dema-  d  for  fruit  and  vegetables, 
the  cultivation  of  which  came  within  the  means  of  the 
small  farmer.  Indeed,  such  cultivation  appeared  to  be 
especially  adapted  to  his  case. 

Small  l,.ldings  thus  become  economicaUy  advanta- 
geous. During  recent  years  they  have  been  advocated 
on  the  ground  that  they  afford  a  means  of  pi^venting 
or  mitigating  the  migration  of  agricultural  laborers  to 
the  towns. 


47 


FIRST   STACK    IX   PKODUCTIO.V 

o{  the  land  invofved  In'  h     ""     ''""^^^  '"  *'"=  ^--^ 
described.  tJ.ere  remaTneJaT    ■""'"*"  ^'''^''  ''"^^  been 

«c-ter.  which  attached  to  rl^  r'"'  f"^  P°''*'''«'  '^'>«'- 
sideration  gave  land  pole  i„t'.'S.  '""'V  '''"''  '^""■ 
enjoyed  it  or  desired  to  e^  t  ^^■''"'^.*'''"'^  "''« 
apart  from  the  income  which  wi  "  P^™""*'-.^  value 
paid  by  the  tenant  farmer,  !  "'"*'  ''•'""  t^e  rents 
fvation  by  the  ownetZurb  h""  *'^  '"°«*^  «^  <^»^- 
ricultural  laborers  ^    *'"  «^'"PJ°yment  of  ag- 

r.ntsZivL*ftmTlSjt!tV"'  ™'"*"'""^''  "»*  by 
property  or  from  ot;:rso'l'rTr''"T*'' '"  "''- 
ca]  consideration  attached  to  L/  f.*""^  P«^'*'- 

>nth  the  law  of  primo^.nrf  ^  ownership  together 

">  Great  Britain  "o  the  ao"'  "'?'  •^''^  ^"^  "^  «»tS  led 
and  thus  to  a  quas^moLSron^       -^  lar«e  estates. 

Successive  reforms^  P  ,  ^"'^  ownership, 
^-dually  diminish  the  .^°Ji^"^r^^  1832  have 
to  Jand  ownership,  and  tbf  r"""^'™*''""  »«»'^hed 
aJarge measure deaSintr  "'"''«^-«*-"  has  in 
■"  the  commercializat^S  of  i??"'""''  ^  ^"'^''^'-  '^^ 
result.  Property  n  land  hi  t  ™"'''P  ''"^  ''-'^  tS 
'"«ny  of  the  great  eJatlr  T'  """"^  ""hile,  and 
I-ee  of  land  has  1  JfSJ ^Fnl",  'f  ^"  "P"     '^"^ 

--d  arising. omtrr;-;iSj--- 


48 


ECONOMICS 


distinction  which  had  been  traditionally  attached  to  the 
ownership  of  land. 

48.  Land  oxcnership  on  European  continent.— TIk 
course  of  land  ownership  on  the  continent  of  Europe 
has  been  affected  by  a  somewhat  similar  course  of  po- 
litical change.  Tlie  destruction  of  the  aristocracy  in 
France  during  the  Revolutionary  period  and  the  subse- 
quent democr::tization  of  that  country  commercialized 
land-owning,  and  the  fertility  of  the  country  led  to  the 
development  of  intensive  agriculture  in  small  holdings. 
The  growth  of  the  population  and  the  attachment  of 
the  people  to  agricultural  occupations  led  to  the  splitting 
up  of  these  holdings  into  minute  fractions.  This  ex- 
treme sub-division  of  land  has  been  the  principal  cause 
of  the  decline  of  the  birth-rate  in  P'rance  and  of  the 
ulterior  effects  which  this  decline  has  produced. 

While  a  great  part  of  the  soil  of  France  is  under  peas- 
ant ownership,  metayer  tenancies  are  common  in  the 
south.  Under  these  tenancies  the  cultivator  does  not 
own  the  soil,  but  receives  it  on  loan  from  the  proprietor, 
together  with  agricultural  implements  and  stock,  on  the 
condition  that  he  transfer  to  the  proprietor  one-half 
of  the  produce.  These  tenancies  also  exist  in  Russia, 
where  the  portion  of  produce  retained  by  the  cultivator 
varies  with  the  renting  contract.  They  are  also  becom- 
ing common  in  the  United  States,  and  they  are  to  be 
found  occasionally  in  Canada.  They  are  practically  un- 
known in  Great  Britain. 

While  large  estates  continue  to  exist  in  Germany,  the 
management  of  these  has  been  greatly  improved  of  late 
years.  Scientific  agriculture  has  been  adopted  with  suc- 
cess, and  nowhere  has  the  art  of  forestry  been  carried 
so  far.  In  Austria  the  technique  of  agriculture  has  not 
attained  by  any  means  so  high  a  degree.    The  increase 


FIHST   STAGK    IS    I'HODUCTlON  ^g 

inc-es  of  Austria  fl,»  ,•        i  "^  eastern  prov- 

techn.^,ue  a",d  c^aS      "?'  '''^''""^"'-^  "^  "Kricultural 

tion  of  scientific  nie^hJ^V"j  ?"'""','''"'' "PP"™' 
rected  agricultural™  '  ""I'^n.ent  of  di- 

40.  Cultivation    of    ttilipnt wu^  i 

large  a  proportion  of  thTr  ".    7     "*    ^"tributes    so 

■n  South  America  the  A™    .'■         .        '  ^WPl    and 
»  extent  lh.t"  ri   f  ""'"T  "'  ""  >*"  '»  ™* 


dO 


ECONOMICS 


migration  and  emigration  have  made  heavy  drafU  upon 
the  rural  population  in  hoth  countrici,  the  pnxluction 
of  wheat  IS  great  enough  to  supply  a  considerable  part 
of  the  quantity  re<|uired  for  consumption. 

The  production  of  wheat  in  Russia  has  been  forced 
by  the  monetary,  fiscal  rnd  railway  jlicy  of  the  Gov- 
ernment. By  means  of  differential  railway  rates  upon 
wheat  for  export,  and  a  high  tariff  against  imported 
goods,  the  cultivation  of  wheat  has  been  stimulated,  the 
paper  ruble  has  been  rehabilitated  and  a  great  stock 
of  gold  has  been  accunuilated. 

The  production  of  wheat  on  large  estates,  by  means 
chiefly  of  Italian  immigrant  laborers,  has  been  an  im- 
portant factor  in  the  development  of  the  Argentine 
Republic.  At  one  time  it  was  anticipated  that  con- 
stantly increasing  quantities  of  wheat  would  be  produced 
m  that  country,  but  the  comparatively  restricted  areas 
suitable  for  wheat  cultivation  and  the  uncertainty  of 
the  climate  appear  to  have  checked  the  increase. 

51.  In  the  United  States  and  Canada.— In  the 
United  States  the  bonanza  farm  has  played  a  consider- 
able role  in  wheat  production;  but  the  bulk  of  the  crop 
IS  after  all  produced  upon  farms  of  moderate  dimen- 
sions, the  labor  upon  which  is  exercised  for  the  most 
part  by  the  farmer  and  his  family.  The  advance  in 
the  price  of  land,  due  to  the  exhaustion  of  the  free  home- 
stead areas  and  to  the  continued  influx  of  population, 
has  resulted  especially  in  the  Middle  West  in  the  wide 
extension  of  the  practice  of  working  land  on  shares  or 
renting  the  land  from  the  owner. 

The  dimensions  of  farms  in  Canada  vary  in  differ- 
ent provinces.  In  the  Province  of  Quebec  the  typical 
farm  consists  of  a  long,  narrow  strip  extending  at  riglit 
angles  to  the  bank  of  a  river.    The  houses  of  the  farm- 


HHST   STMii:    IN    PHCDLCTION  3, 

era  are  situated  at  the  en,l  ««•  n       .  • 
bunk.    Since  the  ,tr  „!  «  "  "  f"''  ""  *''«  '"er 

^•lo*  together      a/K,        ""r"^  ""-"  '«™l'""«;«.  are 

strips  have  CndfvJrjZu;;'"'  '"  ""^"-'"^  »'- 
the  original  strips  and  t'     h      '^''-  ?"'"« *"  ^'"^  f°™.  of 

"f  primogeniture   such  ,  ,  f  •'""•"'"'^"  ''^  '^'  P™<^i^-e 
far.    The  i.>ench  r"     ,  ""  "  '""  "'""''"  ''""'^d 

pl-ymentiitrtwS::;;:'"'  ^--'y  sought  e^' 
e-xtensivelv  emploL  J,  '  '  '""''^  ""''  ""^ "' "'''''' 
centers  in  Canada  >  '1  '•'•  '"  "^  '"'^"''t"«' 
Lawrence  to  norths,,  .,i.h^'\"T'''' J'"""  ^^e  St. 
-"me  extent  to  the  ,,ra  '"    "^^°*'"'  ""'I  to 

«"d -pioymenttc  .::: i;;^;, / r r^^'^ 

thcrown  province  and  in  .1,  '.'J"  *'"!''"  '""'*»  °f 
The  agricultural  techm  1  o.'  ,  "l'  '^  '""'  P"!^''  ^'l- 
"  not  high,  although  effort    ,  '■""''  °^  Q"«''«° 

"•eans  of  agricultufal  edu  ation T  ""T'*"«  '*  ''^ 
made.  eaucation  are  constantly  being 

4t^rr;  ixtdu"  ^"^"^'^"^  --^^  *«  -■' 

tion  of  the  western  wCS!  T^""'  ^''^  -"?-- 
cultivation  of  wheat  tCrTrpU.''  '*  ''""^'''^  ^''^ 
Ontario  farn,ers  Tave  th^ret^'?  "^  unprofitable.    The 

ing  and  to  the  cult  S'  0'^"^^^^^^^^  '"  "''^^^  ^'"-'- 
ricultural  techniaue  h„«  1  "*^  vegetables.    Ag- 

-titutes  and  b;X  ft'r"  ""^r^^^  ''■^  ^''™«"'  in- 
Vncial  Government  of  at  ^^*^*'''  "'^  °^  «'-  Pro- 
71  and  also  o77l;LjZrZ:l  '7^  "'  "  '^ 
"f  agricultural  capital  has  h«>n  .     ''""^^  '"""""t 

(horses,  cattle  anj  pt);,^" '"•'■"'' '"  '''''^  ™«''ng 


Si 


ECONOJIICS 


a  homestead  or  free  grant.  There  are,  however,  smaller 
farms  in  the  neighborhood  of  some  of  the  towns.  To 
the  quarter  section  of  his  homestead  the  farmer  often 
adds  another  quarter  section  or  even  more  by  purchase 
or  by  homesteading  in  the  names  of  members  of  his  fam- 
ily who  are  entitled  to  free  grants. 

52.  Specialist  wheat  farmers. — The  ease  with  which 
wheat  can  be  cultivated  and  the  organization  for  its 
sale,  due  to  the  universality  of  the  demand,  have  to- 
gether conduced  to  specialist  wheat  production  both  in 
the  United  States  and  Canada.  The  chief  economic 
effects  of  this  specialization  may  be  set  forth  thus: 

The  specialist  wheat  farmer  is  dependent  upon  the 
outcome  of  a  single  crop.  He  cannot  spread  his  risk 
over  a  number  of  crop  operations.  In  addition  to  the 
risk  of  the  season  to  which  all  crops  are  more  or  less 
subject,  there  is  the  risk  of  insect  pests.  If  one  of 
these  attacks  his  wheat,  the  specialist  wheat  farmer  suf- 
fers heavy  loss  in  the  same  way  as  a  farmer  who  had 
the  whole  of  his  capital  inves  k  .'  in  cattle  would  suffer 
loss  if  his  cattle  were  attacked  by  disease. 

The  specialist  wheat  farmer  further  runs  the  risk  of 
unwittingly  taking  part  in  overproduction  of  -heat. 
If  this  takes  place  the  price  of  wheat  falls  to  an  un- 
remunerative  point.  The  specialist  wheat  farmer  is 
dependent  upon  the  market  organization  for  the  sale  cf 
his  product,  upon  the  elevator,  the  railway,  the  steam- 
ship and  the  bank.  If  the  ])rice  of  wheat  for  any  reason 
falls  to  a  low  point,  the  farmer  appears  merely  to  be 
working  for  this  organization,  and  not  for  himself.  The 
difficulties  of  organizing  the  sale  of  products  not  in  uni- 
versal demand  are  very  great;  :)ut  the  economic  conse- 
quences of  an  absence  of  diversified  production  are 
not  less  serious  on  that  account. 


CHAPTER    vr 

AGRICULTURE 

a  wide  rnlke?ro4t  iTj/o'r"^*^  '^  ^""'"  ""'^ 
niodities.  while  tranfferrce  of  la.^'  ""^  "^  '^°  '='""- 
the  production  of  one  c"p  to  tS°7"''  ^"P'*«'  f™'" 
at  least  one  season.  xHr £  of  oaf,  ""*'"  "'^^P'^" 
yield  a  higher  return  n.!  .u  ""'-^' '"  ""^  y^ar 

ditions  marbe  altered T:  .rVfr  ^^'"^-^  ''"*  *''-  -"' 

wheat.  ^  ^"™''''  ''°^''  oats  instead  of 

greater  than  t'xt "  X^tj'  ?S?  ^T^""-^ 
amnle  taWp  n  7«„     a-        '»'"""&•    i"  nut  trees,  for  ex- 

whe'X  h  ;e7on;To';r^  '"*"  '""  "^"""^  -'^ 
rooted  up  and  repiaced  b^-       ^  "'T'  ^^""""i-ally  be 

The  -nui:^  ta  f  rd:ut"alsfb  °'  '™'-*  *^-- 
cap'tal,  but  in  manv  n,«n  f    .       '  *"'  specialized 

or  less  speedi^Ta    ~'rrr;te;i  ^°:^"'^'"°- 
such  a  wav  as  to  divert    '"^^''"^'^""er  of  production  in 

d-tion  of  colo^iti  ;S  ""'  '"''•"•  ^'•°'"  *•>«  P- 

Pr^duetionof  those'tlLh^^a'^'^ter  ^""^^  ^"  ''^ 

then,  is  inherent  StLL,     "'T!'"''''''  ''''  ">-* 

the  farmer  can  do  Lu     P  e  "  ."'f  '"•  T '■""^-     ^'"^t 
uc".    He  may,  for  mstance,  procure 
53 


5*  , 


ECONOMICS 


the  kind  of  stock  which  will  meet  the  known,  and  more 
or  less  i)ennanent,  wants  of  tlie  market— the  kinds  of 
beef,  hacon,  poultry,  etc.,  which  the  public  demands. 

Tlie  difference  between  success  and  failure  maj'  often 
lie  in  rapid  adaptation  of  the  means  of  production  to 
demands  intelligently  anticipated. 

54.  Agricultural  capital  and  credit.— A\l  agricultural 
communities  borrow.  The  reason  for  this  appears  to 
lie  deep  in  the  character  of  the  farming  business  and 
in  the  character  of  the  farmer.  The  farming  business 
demands,  as  an  inevitable  incident,  credit  at  least  be- 
tween the  period  of  j  -ing  and  the  period  of  reaping. 
This  period  may  be  taken  as  being  on  the  average  six 
months.  It  is  evident  that  either  the  farmer  or  some 
one  else  must  make  advances  of  the  seed  and  the  labor 
of  ploughing  and  solving,  atid  must  remain  under  such 
advances  until  the  harvest  time,  when  the  produce  may 
be  expected  to  enable  the  advances  to  be  refunded. 

But  this  is  not  all.  The  farmer  and  his  family  have 
to  be  maintained  meanwhile.  If  the  farmer  has  animals 
for  working  purposes  these  have  to  be  cared  for  also. 
If  he  has  animals  for  breeding  purposes  they  have  to 
be  supported  during  the  period  of  gestation.  Thus, 
apart  altogether  from  improvements  upon  his  fann  in 
respect  to  drainage  and  the  like,  and  apart  from  the 
buildings  which  are  necessary  for  the  shelter  of  himself 
and  his  family  and  his  stock  and  crops.  th«  fanner,  even 
if  he  receives  the  land  gratuitously,  must  l)e  p  .vided 
with  a  certain  amount  of  agricultural  capital  in  order 
that  he  may  carry  on  the  business  which  forms  his  means 
of  livelihood. 

.55.  Farming  a  hazardoun  bii»'neg». —The  amtmnt  of 
agricultural  capital  which  is  indispensab!--  varies  in  dif- 
ferent countries,  and  has  varied  at  different  times.     An 


AGRICULTURE  ^ 

Wely  upon  the  period  of  ti^    ovl  ^~^^^^^ 
tions  proper  to  the  business  are  ZZZ        ■      ?  ™' 
to  the  total  output  of  thrbusiner    '  °"  "  "''*"°" 
for  wlierS  'ZrT'  '"^  P™'^"'=«-  °f  *he  goods 

stage  o  raw  itT^^K  't  T'"'^*^^  ^^""^  ^''^ 
and*^  therefore  (SrieyjL  '':'**•  f  «^  '"  °"^  '^''y' 
goods  being  eliitatef  )1tT  T""'\'''^  °^  ^'"^ed 
the  daily  advance  of  n«n'>,T^  ^  ^°''^^^  ^^  *"">  "^^r 
The  amountTrlk  ^r  '^  '^'''  ^""•^'«'  *™^*  *  y^ar. 

hundredtrLrtTf  tfe  «7  "Tf""''  '^  ""'^  °"«  *'''- 
i^an  or  tne  annual  turn  over     Tf  »  «- 

whole  year.  *°*"'  ^°ss  for  a 

The  latter  is  the  ease  of  the  farm     TK«  * 
"  the  nature  of  his  business.  turnTer  hTstllrr  T 
on.  e  a  year.    If  «  «f,>„,  *  advances  only 

large  reserves  if  continuity  is  To  h!"  f"'''  '*''""•<' 

'■an  be  provided  for  X  bv  th. /'T'"'-  ^""^^  "^"^^ 
individual  reserves  or  )1     "  "'^'•'  "'^^mulation  of 

involves,  ofTur/e  Z^  '"Tr '*•    '^'^^  '''«^'-  '"^thod 
-  "bWo^sly'peT^r  „T     '7"'  ^'^  P'^™™-    I* 

«.fficient  eapiS  f:"  Ih   /alliVr  ""^  *°  ^'"^'''^ 
ineir  agricultural  operations,  plus 


j 

i 

I 


56 


ECONOMICS 


the  premiums  of  insurance  upon  the  various  risks  to 
which  this  business  is  subjected. 

But  the  farmer,  however  jrood  an  agriculturist,  i;, 
rarely  a  good  business  man.  >\'hen  he  has  a  bountiful 
crop  in  one  year,  it  is  difficult  to  convince  him  that  he 
may  not  have  as  good  a  crop  the  following  year;  and 
even  if  he  reahzed  that  condition  quite  fully,  the  fluctu- 
ating nature  of  his  business  tends  to  make  him  careless 
of  the  future  instead  of  more  careful.  There  is  nearly 
«s  large  an  element  of  gambling  in  farming  as  there 
is  in  mining,  especially  in  farming  which  is  confined  to 
one  crop.  These  conditions  have  resulted  in  the  phe- 
rwmenon  which  appears  in  ail  ages,  under  all  conditions 
of  land  ownership  and  of  ownership  of  capital  and  under 
all  phases  of  serfdom  and  of  freedom,  namely,  the  phe- 
nomenon of  agricultural  indebtedness.' 

56.  Farm  loans.— This  indebtedness,  while  character- 
istic of  all  farming  communities,  is  not  universal  within 
the  communities.     There  is  to  be  found  in  nearly  all 
agricultural  districts  a  class  of  farmers  who  are  shrewd, 
frugal   and   avaricious,   and   sometimes   another   class 
equally  shrewd  and  frugal  but  without  avarice.     The 
latter  class  it  must  be  allowed  is  rare.    They  do  exist, 
however.    In  the  Province  of  Quebec,  for  example,  the 
author  lived  for  several  months  in  the  house  of  a  hab- 
itant of  this  class.    He  had  lent  a  considerable  amount 
of  money  in  small  sums  to  his  neighbors,  and  he  had 
charged  them  only  five  per  cent,  per  annum.     In  On- 
tario the  other  class  was  common,  especially  before  the 
extension  of  branch  banking  into  the  rural  districts. 
They  exacted  usurious  rates  of  interest. 


'Oii  the  univiT^lity  of  aKriruItiintl  Imlc 


^i-ilnoss  see,  e.  g..  Sir  P.  A.  Nichol- 


son's "Report  on  Uad  and  Agriiullunil  Ilanks  in  the  Ma.lr.Li  Prcsidei 


;nc,y,"  lK9i. 


AGRICULTURE  jy 

lenders  from  private  bankers,  from  loan  companiesanrf 

rom  the  regularly  chartered  or  authori"e"3kT  The 

large  farmer  who  possesses  some  agrieultural  ca  Jta! 

eral  Jittle  difficulty  m  securing  what  money  he  wants 
for  agricultural  purposes,  but  the  small  farmer  isTa 
d^erent  position.     His  needs  are  smaller  Than  tiose 

"emnd  those  needs  because  his  resources  are  slender 

l,.u  ^"f  *^"\  ^•'^■'^  ^'-^  higher  cost  of  anvtlun^  »,.„ 

rchased  m  minute  instead  of  i.i  wholesale  .uantiti: 
the^cost   of   capital    in    small    amounts    is    relatively 

fo/*th^„V"-*'  ''"T"'"-  '"''  '"  '"'•^^  '"<ii-idual  amount 
for  the  provision  of  agricultural  capital  so-called.  Yet 
.n  many  countries  the  provision  even  of  this  smal 

rZZ'^'tf'^''''''''-''y-  ThesnSalTnero 
I  e  amount  which  it  ,s  necessary  for  a  farmer  to  possess 
to  procure,  m  nearly  any  country,  is  very  striking  T 
lie  northwest  of  Canada  an  European  peasant  tcus" 
omed  to  make  the  most  of  his  small  capital  wol  Zk 
hat  he  had  an  extremely  favorable  start  if  he  had  $250 
obegm  arming  with  upon  his  160  acres  of  LmeS 
and     He  could  not  cultivate  all  his  land  with  his  capi- 

t  e  first       '"'.'  ™''''"*^  "'  '""'^''  -  '«  eustomarX 
the  first  year  of  occupation.    With  this  amount,  which 

...leed  IS  relatively  high,  the  capital  required  under 

omestead  conditions  might  be  put  at  $l'.,0  ^r  act 

1 1  e  conditions  vary  according  to  the  land  and  a^ording 

to  the  personal  requirements  <,{  the  farmer. 


58 


ECONOMICS 


37.  The  farmer  inevitably  a  borrower.— The  amount 
i>f  capital  which  is  indispensable  must  be  obtained,  and 
the  farmer  is  thus  inevitably  a  borrower  from  the  begin- 
ning of  his  enterprise.  Moreover,  the  farmer  frequently 
borrows  not  merely  money  but  stock  and  implements. 
For  these  he  pays  in  interest  a  high  price.  Even  where 
the  implements  are  nominally  his  own,  he  has  really  em- 
ployed his  credit  to  procure  them  and  has  paid  a  high 
rate  of  interest  for  the  accommcxlation. 

In  the  Northwest  Territories  of  Canada,  prior  to  about 
1890,  the  then  small  farming  community  was  seriously 
handicappp'l  by  the  practice  of  borrowing.    Interest  for 
sums  of  moderate  amount  up  to  two  per  cent,  a  month 
was  not  uncommon.     The  gradual  extension  of  the 
branch  banking  system  has  eliminated  the  private  banker 
either  by  competition  or  by  purchase  of  his  business  by 
a  chartered  bank.     Such  rates  are  therefore  unknown 
for  "good"  loans.    In  France,  Germany  and  Italy  usu- 
rious loans  are  still  prevalent.    Enormous  rates  which, 
however,  are  usually  not  recoverable  in  the  courts  of  law- 
are  sometimes  extorted  from  the  unfortunate  peasants. 
58.  Evil  of  usurious  rato.-  Where  usurious  rates  are 
charged  the  farming  community  rapidly  declines  into 
a  condition  of  debt  dependency.     The  position  of  the 
farmer  becomes  httle  better  than  that  of  a  serf  to  his 
money  lender.    This  has  been  almost  literally  the  case  in 
Italy,  where  sometimes  a  peasant  enters  into  a  contract 
not  only  to  pay  a  certain  amount  of  interest  in  cash, 
but  even  to  render  one  or  more  days  of  labor  a  week  to 
his  creditor  and,  in  addition,  to  supply  him  with  vege- 
tables without  payment.     Such  incidents  are  precisely 
the  same  as  those  by  which  the  serf  discharged  his  obli- 
gations.   Partly  owing  to  the  revivification  of  Southern 
Italy  through  the  savings  of  Italian  emigrants  to  Amer- 


AGRICUT^TUnR 

"'urts)   of  inducin/f«™      !    u    ^''P""^** '"  ^''^  '•'^ 

t'.ey  may  trufe^L;.rpVs^lT  "  ''''V'"' 
usurer.     While  th^,„       ^?  *''*  P"'^^'  °f  the 

^eneraleSofllTsuKl^r.^^^^^ 

-wing  and  to  stimulate  savinuTf  „„^t  ,     ^.   '*""  •""- 

"f  keeping  out  of  the  usu^/utS        ^'^  ^^^"^ 

^^^rSsroSi.rs;te?--- 

land  baZ^I  ^i  a/rr'^*"^^  '^  P"^'"*^  '-^ers. 
established  in  1    "    «^^^^  have  been 

nieans  of  funds  suppZTaZl^r'T .^'""'''^^^  ^^ 
».y  enthusiasts  for  SVeTo™  Th/  1.  ""f  P"*'^ 
creased  facilities  for  borrrwinTand  'Lh!     H  "'^'^  '"- 

'-S.  ItTn;itbsre  Va^^^^^^^^^^^  1  ^^^'^^^^ 
Jitions  loans  were  nr,t  J  /  ,       ^''^  ^°™*'''  «">- 

;^  the.  being^droV  e:=rsi::^^^^^^^^^  ,T7 

^:?ebtd^S,ra;i;'  ''-'  ^"  -ensCte Jset 
^^^^^^  in  the  small  farmmg  communities  has  taken 

-r^hfn^Srit^crn^^^^ 

haveenabled  the  ffr,^!  f  k  '^""''*'"  ^"^  borrowing 
^-.     Tjelncrease  oT  '"'"'  ''^*^"^"'^  '«"d  h^'d 

valueof  la'd^hr  i^dreXmTo  ""'/'^  '"""'^^'-^ 
P-d  homesteads  inordSt^ulrilfd^:^^^^^^^^^^^ 


GO 


ECONOMICS 


hold  for  speculative  purposes.  They  have  usually  insuf- 
heiciit  agricultural  capital  to  utilize  the  additii.nal  areas 
and  they  could  with  difficulty  fiud  the  labor  to  do  m 
even  if  they  had  sufficient  cajiital. 

In  most  cases  the  land  is  [  irchased  from  the  railway 
companies  out  of  their  land  grants,  and  is  payable  by 
mstahnents.  The  farmers  are  thus  driven  to  save  out 
of  their  yearly  income  a/i  amount  sufficient  to  meet 
these  mstahnents,  the  currency  of  which  is  usually  ten 
years.  The  optimism  which  is  characteristic  of  the 
northwest  has  in  many  cases  led  the  farmers  to  enter 
Hito  obi.gations  to  meet  which  an  uninterrupted  series 
of  hifiJ.y  successful  years  would  be  necessary. 

CO.  Far7n  mortgage».~MoTtga^    loans    upon    im- 
proved land  are  customarily  effected  through  loan  com- 
panies and  so-called  trust  companies,  of  which  there  are 
a  great  number,  most  of  them  having  their  headquar- 
ters m  Montreal  and  Toronto.    These  companies  in  gen- 
eral will  lend  upon  first  mortgage  upon  improved  land 
(i.e., land  a  certain  proportion  of  which  has  been  brougiit 
mto  cultivation  and  upon  which  fa^m  buildings  have 
been  erected)  an  amount  equal  to  about  $1,000  for  each 
quarter  section  of  1 60  acres.     This  rule,  which  is  flexible 
according  to  conditions,  the  amount  seldom  exceeding 
$1,000,  and  occasionally  falling  short  of  it,  applies  in 
general  to  Manitoba,  to  the  greater  part  of  Saskatche- 
wan and  to  Xorthem  Alberta. 

The  usual  rate  upon  such  a  loan  is  seven  per  cent. 
Since  recoverj'  of  interest  or  principal  by  process  of  law, 
should  this  be  necessary,  is  more  expensive  in  outlying 
districts  than  in  those  near  the  centers  of  population, 
the  rate  is  sometimes  higher  in  these  districts.  In  dis- 
tricts where  crops  are  uncertein,  owing  to  deficient  rain- 
fall even  in  normal  seasons,  such  companies  will  eitlier 


not  1( 

whicli 

again 

61. 

ativel; 

the  ni 

have 

financ 

of  Ian 

tion  m 

but  me 

is  true 

the  leu 

and  thi 

paymei 

ous  los! 

e.vcessi' 

series  o 

The! 

in  gene 

crease  c 

mand  t( 

uted  hd! 

mand  a 

The  J 

been  du^ 

gions  ah 

that  so  J 

been  far 

striiction 

numbers 

has  the 

>est  time 

is  annual 


AGRICULTURE  „, 

against  loss  through  infer  JL'X  '""™""' 

iion  n,ay  Lb,e  h^  JlS  ^L  itfat'TST 
but  nieanwhile  he  is  rich  in  land  and  po.,nn  moLv     It' 

he  lendmg  companies  have  been  placed  at  long  date, 
and  that  so  „.ng  as  the  farmer  can  maintain  hisltere  J 

uXs  1:  hir^^^r  r^  ""*  ^^  ^"^  -se  o?n  : 

vlss  ve   eZ  th"  ."f  '"  '^^"^^'^^^  h-e  not  been 
sen^rndantXs     '""^  "°*  ''^  ^  --~s 

The  solvency  of  the  western  farmer  appears,  however 
n  general  to  rest  upon  the  maintenance  or  upon  an  .n 
crease  of  the  price  of  land,  because  the  snecuTatirde 
mand  to  which  the  farmer  has  himself  kS  contrib 
"tea  has  anticipated  an  increase  in  the  price  Sou^hde' 
mand  arising  from  new  immigrants  ^ 

The  growth  of  the  towns  in  the  northwest  has  not 
been  due  exclusively  to  the  growth  of  thTt 
f  ns  about  them,  b'ut  has  beTdut  tge  y   ^Kt" 
hat  so  large  a  proportion  of  the  immigrant    have  not 
been  farniers.    The  deman.l  for  labor  for  ra  Iwrc^n 
stniction  has  provided  means  of  emplovmenf  Z.  i 

Has    he  per,o.l,cal  demand   which  arises  during  bar 

annual.    The  former,  however,  is  liable  to  suspension 


08 


ECONOMICS 


whenever  the  railway  companies  .uapend  their  policy 
of  constructing  branch  lines.    The  three  main  lines  of 
railway  are  almost  completed,  and  furtlier  multiplica- 
tion of  these  is  unlikely  for  many  years,  but  the  build- 
ing of  branch  lines  may  go  on  indefinitely.    When  tht 
Canadian  Pacific  Railway  was  finished  to  the  coast,  the 
population   which   its   construction   attracted   rapidi^ 
me  ted  away.    This  phenomenon  is  not  likely  to  occ.r 
to  the  same  extent  when  the  Grand  Trunk  Pacific  an.l 
the  Canadian  Northern  Railways  have  completed  their 
main  lines,  but  some  disposal  and  redistribution  or  even 
emigration  of  the  large  population  employed  in  their 
construction  may  be  counted  upon. 

,^f■,\^[?'  "*  *'^'"""'^^— In  th«  Canadian  Bank  Act 
(1918)  there  is  a  provision  which  enables  the  chartered 
banks  to  lend  money  to  farmers  upon  the  security  ,.f 
their  crops.    This  provision  may  only  explicitly  legalize 
a  practice  already  previously  in  vogue.    A  bank  migi.t 
at  any  tm.e  lend  a  farmer  or  anyone  else  money  on  Im  I 
personal  security  only,  and  the  fact  of  the  existence 
of  the  crop  might  be  an  important  element  in  the  deter- 
mination of  the  bank  as  to  whether  the  loan  should  be 
made  or  not.    Yet  the  new  provision  enables  the  bank 
to  take  from  the  farmer  a  lien  upon  his  crop.     If  this 
were  to  act  as  an  inducement  to  the  farmer  to  borrow 
when  otherwise  he  might  not  do  so.  the  provision  might 
be  very  mjurious  to  his  interests.    If  the  provision  ha.l 
the  effect  of  enabling  the  bank  to  secure  a  lien  upon  all 
the  movables  of  the  farmer,  although  there  was  nothinR  i 
to  prevent  the  proceeding  in  the  earlier  acts,  the  mtrc 
existence  of  the  provision  might  militate  against  tl>e 
fanner  s  general  credit.    In  any  case,  the  provision  .Iocs  I 
not  appear  to  increase  agricultural  credit  in  any  w«v 
although  it  might  in  certain  eases  give  the  bank  a  pnf- 


AGHICULTUKE  g^ 

bank  the  farmer's  XereSleor        ™"'  "^  "'"'•''  *"'' 

which  are  so«"  «  2  l"'/?"'''':"  '"""  «■'«-'«'-"<.. 

pawnbroker.  The  52^^/  !  ^"'"^  "^"«'-  ""^  the 
tion,.  find  L^LrTtol  ''  "'^'''''  "'^''^  ""•^i"" 

tl.at  the  smaira^of  ul  ;  «' ■"  ™'  '"^-  '^^'y  «"<! 
heavy  costs  '  Wheler  t£  "''T''  """'"*'''  «'"'-eIy 
and  ihethe  thTy  bt  in  t'hr*"  '"^  ^^'^^  "'  '"""^y- 
di^ed  semi-benevoS  i^  /f  7'"  '"'"■'^^*  "'•  '»  ""^si- 

more  than  t^teausf  th^^^^^^^^  ^'^^  ''"'^  *"  P-^ 
ties.  ""*^  ^''^y  '"■y  "'  smaller  quanti- 

especially  in  Italv  «.T     /"  '"'''^'"P'^ent  in  Europe. 

advocatS  ortietrlrof  "T  '''''  '"'-  ^-" 

b.v  a  bank  sustSned  bv^  '''"""^ **"=  ^'""^^ "''"••«•■ 
The  chief  advocates  of%:  3^^^^^^^^^^^^^  ^-li"?  society, 
banks   have    been    Prnf„   ^    cT! ''"""P^'"''*'^*  «='-edit 

humanitarian  t?i  J  X  bi'nihf  ^'"^'^'''  ■^''''- 
conservative  social  reform  in  GeZ  *''^  ""'""P^ng  of 
and  Mr.  Raffeisen    h,.^  ''ermany  for  many  years. 

Ti,«      "^"^'Sf n.  hur^omaster  of  FlammersfpM 
Ihe  co-operative  crprfit  Ko^i,  '"""nersield. 

feisen  is  a  very  sTm„r^  *"'  '"^^^^t^d  by  Raf- 

">e  society  p,7drt?elcTr;'°"-,  ^"^  ™^'"'-"  °f 
and  loanj  and^  lend  X  '  '  '''  '""'^  '^^P°''*» 
There  is  no  share  tpitaiandTer  ""''"^  *''^'"^^'^^''- 
The  liability  of  each  member  nf  ""■'  "°  '^"■'■'^^"•^''• 

The  system  on  the  wht    Istr'^  ''  """■'"'*'^''- 

I"  the  ^rm  described  or  -.Xrri^^rX 


MraocofT  DEsoiurioN  test  cmaut 

(ANSI  ond  ISO  TEST  CHART  No   2| 


1.0    Irl^  m 

^  -  is  ilia 


I.! 


^6 


I 


2.0 


11.25  11  u 


1.6 


^     x^PPUED  IMHDE     In 


^65  5   East    Wom   SUfet 

(716)    *ei  -  OJOO  -  Phorp 
(716)    288  -  ^989  -  Fa. 


64 


ECONOMICS 


been  adopted  in  Germany,  and  in  Italy,  where  usury 
was  even  more  prevalent  than  in  Germany,  and  it  has 
been  adopted  on  the  strong  recommendation  of  Sir  1". 
Nicholson  in  the  Province  of  Bengal  and  in  the  Punjab 
in  India. 

The  success  of  the  system  in  Germany  and  in  Italy 
may  be  ascribed  to  three  causes:  (a)  the  prevalence 
of  excessive  usury  in  both  countries;  (b)  the  absence 
of  banking  facilities  of  a  regular  character,  especially  in 
the  rural  districts;  and  (c)  the  greatly  increased  pros- 
perity of  Germany  in  consequence  of  the  development 
ot  industry,  and  in  Italy,  in  consequence  of  the  revivifi- 
cation of  the  country  through  the  savings  of  Italian 
emigrants  to  America. 

In  India,  also,  the  prevalence  of  village  usury  offered 
favorable  conditions  for  a  reorganization  of  credit  oti 
a  commercial  basis,  and  the  minute  amounts  involveil 
in  the  loan  transactions  rendered  voluntary  and  unre- 
munerated  management  indispensable.  The  establish- 
ment of  co-operative  credit  among  very  poor  peasants 
is  unquestionably  a  sound  and  wise  measure. 

It  is,  however,  questionable  whether  the  system  of  co- 
operative credit  is  susceptible  of  wide  extension  in  coun- 
tries where  the  conditions  are  different  from  those  of 
the  countries  in  which  it  has  been  successfully  estab- 
lished. 

64.  Vmry  gradually  vanishing. — In  the  United 
States  the  competition  of  banks  has  probably  almost 
totally  eliminated  usury,  so  far  as  the  provision  of  agii- 
cultural  capital  is  concerned;  in  Canada  we  have  seen 
that  usury  existed  and  perhaps  in  remote  places  still 
exists;  but  it  is  by  no  means  common.  The  facilities 
afforded  by  the  chartered  banks  have  undoubtetlly  on 
the  whole  rendered  the  business  of  the  usurer  very  bard 


AGUICir.TURE 


65 


to  conduct.  When  the  cliartcix.l  hanks  l)egan  to  open 
hranches  in  the  Xortlnvest  the  private  bankers  and  tile 
well-to-do  money  ienihng  farmers  gnnnhled  at  tlie  fail 
in  tlie  local  rate  of  interest.  Thev  found  it  was  im- 
|)ossible  to  make  a  living  from  money  lending  in  com- 
petition with  the  hanks.  The  banks  took  at  once  all 
the  good  accounts  and  left  the  doubtful  accounts  to 
the  money  lenders.  The  competition  of  the  Canadian 
chartered  banks  has  resulted  in  their  establishing 
hranches  in  the  Xorthwest  in  every  direction.  Practi- 
cally wherever  there  is  an  elevator  there  is  a  hank. 

Jloreover,  in  those  countries  in  which  the  co-operative 
credit  system  has  been  found  to  be  successful,  there  is 
no  development  of  credit  institutions  such  as  the 
loan  and  trust  companies  to  which  reference  has  pre- 
viously been  made,  nor  is  there  such  extension  of  trade 
credit  as  is  to  be  found  in  a  country  like  the  North- 
west of  Canada,  for  example,  where  a  farmer  pos- 
sessing improved  land  is  urged  to  accept  credit  by  the 
vendors  of  agricultural  machinery  who  comjiete  for  bis 
trade. 

Co-operative  credit  without  the  organization  of  co- 
operative credit  societies  in  any  formal  manner  is.  how- 
tver,  not  unknown  in  the  Northwest.  Farmers  who  are 
well  acquainted  with  one  another,  and  who  desire  credit 
for  the  purchase  of  seed  or  implements,  spontaneously 
form  groups  for  mutual  credit.  They  draw  a  i)romis- 
sory  note  for  a  certain  amount  due  at  a  certain  date, 
Rciierally  after  the  harvest,  for  a  sum  which  represents 
the  aggregate  of  their  requirements,  and  each  member 
of  the  group  signs  this  document  and  receives  his  share 
of  the  proceeds.  The  WTiter  has  seen  in  the  branch 
banks  in  the  Northwest  of  Canada  notes  of  this  kind 
with  a  hundred  names  attached  to  them.    If  the  lead- 

C_I-5 


06 


ECONOMICS 


irig  n.embers  of  tlie  group  are  known  to  the  man- 
ager of  tlie  local  i)raiicli  of  a  chartered  bank,  there  is 
usually  no  difficulty  in  discounting  the  note  because 
each  of  the  drawers  is  jointly  and  severally  liable  to 
the  extent  of  his  means  for  its  j)aynie!it.  This  form  of 
co-operative  or  mutual  credit  is  very  common  and  has 
greatly  facilitated  the  establishment  of  many  of  the  for- 
eign settlements. 

65.  Co-operative  loan  societies  less  necessary  than  for- 
merli/.— Since  1890  the  Northwest  has  been  borrowing 
heavily  from  the  East,  and  through  the  East  from  Eu- 
rojie.  Further  extension  of  credit  may  be  necessary,  and 
an  increased  number  of  credit  institutions  may  be  neces- 
sary also;  but  the  jirofessionalization  of  banking  in  the 
United  States  and  Canada  has  rendered  it  less  necessary. 
It  is  now  much  more  difficult  to  establish  small  local 
credit  societies  whose  powers  of  obtaining  capital  at 
lower  rates  of  interest  than  the  rate  of  chartered  banks 
and  loan  companies  must  be  limited.  Moreover,  the 
credit  sj'stem  of  the  country  is  on  the  whole  so  well  or- 
ganized and  is  subject  to  so  effective  competition  that 
local  co-operative  credit  associations  would  be  likely  to 
procure  only  the  doubtful  business,  or  that  business 
which  the  banks  and  loan  companies  would  not  care  to 
have  because  of  the  risks  involved.  They  might  thus 
serve  some  who  are  not  now  served;  but  the  absence  of 
'  the  more  certain  and  profitable  accounts  would  probably 
prevent  their  business  from  being  large  enough  to  allow 
for  the  losses  they  might  sustain  by  pursuing  a  policy 
of  generous  lending. 

^loreover,  the  farmers  all  usually  require  advances 
at  the  same  time.  The  provision  of  these  funds  taxes 
the  resources  of  the  banks,  although  they  have  access  to 
the  international  money  market;  it  is  difficult  to  believe 


AGUICUimUE  „7 

that  the  local  co-o,.erative  assr.ciations  ,vo„l,l  he  ahle 

re  Me    o  the  „rg.„,j,ii„„  „,  „„  „,„  ,       " 

^^«iponhe;or;;j^;r;st^E 

Begin  with,  set  aside  a  certain  quantity  for  seed"an,I 

Botro?tir''-^'  V  ~Ptio/of  V'tX 
Both  of  these  quantities  are  in  a  sense  fi  1  The 
farmer  .-ill  under  normal  conditions,  sow  at  tast  as 
much  seed  m  any  particular  year  as  he  sowed  the  pre 

-ins  is  the  quantity  whichTstj,:  eTsal^  tJI: 
;t;n  events  is  the  case  under  normal  farn^ing  co^ 

-mc  of  |„.  ,,ve  stock  in  order  to  save  grain,  and  per- 


fll 


I 


68 


KCONOMU'S 


>      ■■■■ 


niA^ 


haps  even  (liniiiiisli  tlic  ciinsiiiniJtion  of  grain  in  his  fam- 
ily by  substituting  some  otlier  foodstuff.' 

When  a  surpl'is  accrues  the  farmer  lias  to  choose  be 
tween  selling  it  immediately  after  harvest  or  keeping 
it.  In  the  former  case,  where  the  market  is  a  restricted 
one,  the  farmer  sells  his  grain  at  the  jjeriod  of  the  year 
when  grain,  being  in  abundant  supply,  is  normally  at  its 
lowest  price.  In  the  latter  case  tiie  farmer  incurs  the 
risk  ant'  cost  of  storage.  Under  the  existing  conditions 
the  grain  market  is  not  restricted ;  it  is,  on  the  contrary, 
world  wide,  and  the  seasons  of  harvesting  in  different 
countries  do  not  coincide.  Thus  the  period  of  harvest 
in  one  country,  or  even  in  many,  may  not  be  the  period 
of  lowest  price.  When  the  farmer  holds  his  wheat  lie 
runs  the  risk  of  obtaining  a  lower  price,  although  lie 
also  has  an  opportunity  of  obtaining  a  higher  priee 
should  the  market  advance. 

If,  however,  the  farmer  decides  'o  sell  his  wheat  im- 
mediately after  harvest  he  must  take  it  to  the  raihv;iy 
station.  In  the  Xorthwest  of  Canad™  tliM  is  sometimes 
a  serious  undertaking.  The  roads  are  often  in  bad 
condition  at  this  jieriod,  and  if  the  distance  is  consider- 
able, twenty-five  miles  for  instance,  the  farmer  will  need 
to  weigh  the  advantages  of  keeping  his  horses  at  tlie 
l)lough,  utilizing  the  fine  days  of  the  early  fall  for  tlie 
purpose  of  ploughing,  against  the  advantage  of  gettinj; 
his  wheat  to  market,  lie  has  to  consider  that  later  in 
the  season  he  cannot  plough,  and  the  roads  will  be  in 
good  condition  after  the  first  touch  of  autumn  fmst. 
But  if  he  decides  to  wait  he  nmst  not  wait  too  loii),'; 
for  after  the  beginning  of  November  he  will  find  it  dif- 
ficult to  get  his  wheat  out  to  the  Great  I.,akes  before 
the  close  of  season. 

'See  remarks  and  illustrations  in  Part  IV  on  Consumption. 


AGitici-r.Tfui: 


e» 


nnhuj  l,c.  l.as  a  .Lou-e  of  two  n.c.tl,o,|.s  of  ,|i.s,,o,si„K  "f 
t;    He  ,nay  .so.l  ,t  to  local  flour  .niH,  to  k-  Kro,.„d  o 
IHS  ..w,.  acx.ou„t  or  i.c  „,ay  co„.si«„  it  to  agents  i      V^ 

I'Z'  ',"''"'"*''•  '"  ''"«■"'"•  "■•  -  I-er%I     >r  si 

he  « ,11  have  to  run  the  risk  of  the  priee  .t  which  his  wE 
will  eventually  he  realized     Undlr  tl,„  ^r  ,V 

\„f  n     »        •  "^u'l'iu.     L  nder  tlie  ^Manitoba  CJra  n 

Aet,  the  farmer  can,  by  jfiving  notice  to  the  railway  eon 
pany  he  sure  that  a  car  for  his  shipment  will  be'ia" 

farm  rt      -^f'^Ir  r  tZ  T^'^*"  *'"^  ^^     '^'^ 
•  '  "'  course,  take  the  gram  to  an  pl^vnt^^ 

comj.„y.,d  sell  it  outright.  receLgthe^^^^^^^ 

So  far  as  the  price  is  concerned  the  farmer  and  the 
elevator  company  are  on  exactly  equal  terms  for  bar! 
^umng,  because  the  price  at  any  railway  station  set 
act>   the  same  as  the  market  price  at  Fort  w;ir 
("•l..ch  is  the  point  of  shipment'  on  th    G^t  L  ke'sT 
less  a  constant,  which  includes  freight  to  Fort  wSlilm 
and  all  elevator  charges.     The  mtrket  price  at  Fort 
n  .ham  ,s  based  in  turn  upon  the  Chicago  and  Live 
pool  pnces.    Advices  upon  the  fluctuations  in  thL  mar 
ets  are  practically  equally  available  to  the  farmer  and 
to  the  elevator  company.'  " 

<i8.  EHablishing  grade  and  quality. -There  is  how 
ever  ancH^r  element.  The  price  bein^g  fixedTnVend- 
en  ly  of  the  farm-r  and  of  the  elevator  company  by  the 

t^rn„ned,  because  upon  this  depen.ls  the  price  of  the 

1  I'..      ■• 


in  tlie 


^CZ^^.  """'"''"'"  '*'™""-'""i-"'atio„ore„U„.a„d^« 


70 


ECONOMICS 


imrticular  lot  hikhi  tlie  scalf  fixed  from  day  to  day  at 
Fort  William,  and  from  moment  to  moment  on  the 
Corn  Exehaiiffe  at  Liverpool  and  in  the  "Wheat  i)it"' 
at  Chicago.  It  seems  that  from  the  point  of  view  of 
the  farmer,  the  elevator  company  always  grades  his 
wheat  too  low,  and  from  the  point  of  view  of  the  ele- 
vator company  every  farmer  thinks  that  all  of  his  wheat 
is  No.  1  Hard.  The  estimation  must  be  a  rough  and 
ready  one.  The  question  of  quality  could  easily  be  de- 
termined on  a  scientific  basis,  but  there  is  no  time  for 
this.  Even  the  Government  inspection  of  wheat  is  of 
a  rough  and  ready  character,  and  the  standards  are  sub- 
ject to  fre(iueiit  change.  The  problem  is  a  very  diffi- 
cult one.  Uj)  to  the  jiresent  time  no  real  solution  has 
been  found.  Disputes  between  the  farmers  and  the  ele- 
vator companies  having  become  freejuent,  a  Grain 
Growers'  Association  has  been  formed  for  the  purjiosi' 
of  dealing  with  the  question  co-operatively,  and  tiiis 
association  has  had  a  considerable  amount  of  succtss. 

69.  From  elevator  to  market. — If  the  farmer  conies 
to  terms  with  the  elevator  company  respecting  the 
grade,  he  receives  a  check  upon  a  local  bank  for  the 
amount  due  him — grade  and  market  price  being  the  o  !y 
elements  in  the  calculation — and  the  farmer's  interest  in 
the  grain  ceases.  This  is  the  normal  course.  If  the  liKal 
elevator  is  filled  with  grain,  and  it  is  impossible  to  get 
it  conveyed  to  the  central  elevators  at  Fort  William  hu- 
cause  of  the  scarcity  of  cars,  the  system  does  not  work- 
so  smoothly.  The  elevator  company  may  refuse  to  take 
delivery  of  wheat  offered  by  the  farmers.  Th's,  how- 
ever, rarely  happens. 

The  grain  having  passed  into  the  hands  of  the  ele- 
vator company,  it  is  placed  in  the  elevator  with  other 
grains  of  the  same  area  and  the  identity  of  each  par- 


.Attuicri/n'HK 


rf ''    'H 


'Iciilar  lot  is  at  onct-  lost.    The-  el. 
lip  its  carloads  and  sends  tliini  ,,(} 


levat 


71 

or  company  makes 


lis  rapidly  as 


to  Knrt  Will- ^  rapidly  as  possili  e 

1  >  i  ort  W  ,11  am.  wl,ere  the  ^ndn  is  transferred    o  |,„,rc 
.levators  and  then  loaded  on  steamers  which  eonv  v  i 
™  tlie  (ireat  Lakes  to  «M,ralo  on  Lake  Kr  e'  to 
Mcmtrea  or  to  Depot  Tlarhor.    At  Montreal  th    «;. 
IS  baded  upon  ocean  stean.ers;  from  the  lake  poSs  it 
IS  transporte.1  hy  rail  to  Portland.  Hoston  or  Phi l^.l 
I  iia,  or  by  rail  or  canal  and  river  to  New  York      r 
^  ipment  to  CJreat  Britain.    The  strean.  of  ,Jn  le  j 

.--rt:^^:;;sr"r^r;h;=: 

c  banks,     rius    hey  do  upon  the  security  of  each  par- 
'1  "f  gram  as  it  ,s  transferred  to  the  railway  company 

qwrea  for  the  movement  of  the  cro,,  is  so  great  that 

prepa.a,o„s  have  to  be  made  for  som'e  time  bef  reha    , 

rmerly  the  Canadian  Hanks  provi<led  a  portion  of  he 

nds  necessary  for  the  movement  of  crops  n  the  l  Jnit^I 

.  ates;  nowM,e  Canadian  requirements  a're  large  enough 

;:r;:D:eemr."^^^^  '"'"«  "'^  '-'^'  ^--  «^1'*- 
The  documents-grade  certificate,  bill  of  lading  and 
the  drafts-are  forwarded  together  at  the  time   the 
^t  as  shipped,  and  the  Canadian  bank  is    redite. 
■n  London  with  the  amount  which  has  been  paid  on  Tt 
account  as  soon  as  the  wheat  arrives 

neerned,  is  the  final  process,  is  achieved  only  bv  the 
-operation  of  a  great  number  of  voluntary  agencie  1 
^.Iways.  steamships,  banks  and  elevator  companies-H.e 


i 


74 


KCONOMICS 


coniliined  cnpitnl  of  llicse  «;^cncios  being  vastly  in  ex- 
cess of  the  agri  iilturiil  eapitai  employed  in  the  pnKliie- 
tion  of  the  wheat.  Tlie  stiviivs  whieh  tliis  intricate 
organization  renders  are  necessary  under  iniMlern  eondi- 
tiiins  in  order  to  transfer  rapidly  eoniniodities  from  one 
market  to  another.  Wiiliout  some  siieli  series  of  agen- 
cies the  '"armer  would  lie  unable  to  dispose  of  his  sur- 
j)his  wheat,  and  the  JJuro|)ean  consumer  would  have 
to  pay  a  much  higher  jirice  for  wheat  locally  jjfoduced. 
iixleed,  the  large  industrial  town  would  be  an  impossi- 
bility without  the  eo-oi)eratioii  of  the  long  series  of  ac- 
tive agents  which  begins  with  the  farmer  and  ends  with 
the  buker. 

I  71.  IVI  rat  market  mont  hiffhli/  organized. — The  mar- 

ket for  all  farm  j)roduce  is,  however,  by  no  means  so 
effectively  organized.  The  chief  reason  for  the  effec- 
tiveness in  the  organization  of  the  wheat  trade  is  tlic 
universality  of  the  demand  as  well  as  the  elasticity  of  it. 
The  saturation  jwint  or  the  point  where  there  is  iid 
further  increase  of  demand,  even  though  the  price  be 
reduced  to  a  low  point,  is  high  in  the  case  of  wheat. 
Oats  and  rye,  on  the  other  band,  are  not  so  universally 
demanded,  and  their  saturation  iwint  is  lower.  Wheat, 
unlike  vegetables,  fruit  and  dairy  produce,  does  not  (k- 
teriorate  .so  long  as  it  is  kejit  dry.  It  may  lie  kept  for 
a  long  period  of  time.  Organization  on  the  same  scale 
as  that  applied  to  wheat  is  therefore  not  applicable  to 
any  but  a  similar  commodity.  Attempts  have  been 
made  to  organize  the  fruit  trade,  especially  in  Canadian 
apples,  but  the  difficulty  of  standardization  and  the  re- 
luctance of  the  growers  to  submit  to  marketing  rej>ii- 
lations,  together  with  the  perishable  nature  of  the  fruit, 
have  rendered  the  organizatioii  of  the  market  for  fresh 
fruit  very  difficult.    Cold  storage  has  facilitated  the  or- 


AOIU(ll.'irn|.; 


73 


I  Noine 


Kimization  of  the  nmrk.tC.r  fruit  milk  I „, 

«'tl.er  ,R.ri.slml,le  ,,r,„hK.c..  '""  "'" 

72.  Ma,t  pro,/     ■/„„  „,  „,,  cwimrlitr  hiduHln.      Tl, 

trie.,  u,.,lc.r  the  heu.l  of  u^iu  t,,^:  ^xHo.tat.ve  uulus- 

"rounded  up"-thit  is  tLv  ^,'"'"''   ""'""    """^ 

mounted  men  and  t  ''     ?        '  '"*"''  *"«*'"'^'-  ''^ 
hrand  of  tTe  cows  ^  :*  ^■^7  T'  ''''"''''''      •*'>  *''"- 

''.ee;T^LoTt,?ti  7.  tti:  -r "  '-'--^ 

■round  up"  was  opMn,^ ,  .  lu  ^  ""*"'""  '"'°*''«^'- 
i'-tended  Lri  3e  XS  ^  ""'^  "■'"■'^''  "■^- 
stations  and  entrainS     T  e  sttk  onTh*"  ''^'  ™"""^ 

ant  ranges  was  good,  and  aUhtTgh  tllnwr^^" 
of  capital  was  considerable,  and  Smul  in  '  '  "' 
teis  many  cattle  «-Pr„  i„  *  \u       "'""*?"  "i  severe  win- 

""tnit  by    he  rZhl^  '"""*'"■  ^'"'P"'-'^''«sea 

K  11   uy  tne  ranchmen — somet  me*  th»„   1        1 
'ar«e  area  and  purchased  „  c      ,,      ^^  ^''^y  leased   a 
The  practice  "  P"'^''^"'''^''  «  smaller  area  in  addition. 
pract.ce  of  ranchmg  resulted  in  a  great  addition 


II 


^■U'i 


74 


RfOVOAfirS 


f«i  tlie  production;  mid  tlic  (•(niNiiniption  of  beef  wns 
Krcatly  stiiimliilcd,  es|K<i«lly  in  tlic  indiistrial  renters 
of  Knf^liind. 

A  certain  amount  of  cattle  raneliinx  is  still  carried  on; 
hut  the  jiractice  has  disappeared  from  Southern  Alherta, 
except  in  the  f(H)thills  of  tl^c  mountains.  The  ranges 
over  which  the  cattle  roamed  at  will  u  few  years  .'U{o 
are  now  occupied,  though  scantily,  hy  settlers.  Settle- 
ment and  ranchinj^  arc  nuitually  exclusive.  The  coiise- 
([uences  of  this  change  liavc  been  the  diminution  in  the 
production  of  range  cattle  and  a  certain  stimulus  to  the 
production  of  stall-feii  cattle  owing  to  the  advance  in 
the  i)rice  of  beef. 

In  the  United  States  and  in  Canada  the  trade  in 
bacon  ha?  been  organized  by  the  pork  packers,  and  the 
export  trade  has  been  organize<l  in  the  same  manner 
as  the  export  trade  in  manufactured  g(x)ds.  The  trade 
in  mutton  which  has  been  highly  organized  in  \ew 
Zealand  has  not  been  effectively  or;];anized  in  America. 
Certain  regions  are  peculiarly  fitted  for  sheep  farming, 
but  a  great  part  of  the  plains  is  unsuitable,  partly  be- 
cause of  the  character  of  the  grasses  and  partly  because 
of  the  depredations  of  wolves.  The  production  of  mut- 
ton is  thus  not  any  more  than  sufficient  for  local  con- 
sumption. 

The  chief  points  of  economic  interest  in  connection 
with  these  and  other  similar  exploitative  industries  arc 
the  extent  to  which  it  is  possible  for  producers  to  n- 
spond  to  variations  of  demand,  and  the  metl  od  of  or- 
ganization by  means  of  which  the  produce  is  broufilit 
to  the  most  advantageous  market.  Some  of  these  points 
are  discussed  more  fully  under  the  head  of  Exchaiifre. 


t'HAI'TKU    VII 


"'"I 'mother  .iJs  ""  '■■"*■■"'•"""  '"•  i^""  "'"1 

(i<)l<l.  for  instance,  is  verv  wl,l,.K.  i    » 
'listrih.te.l  in  nature     W  ere  i^^     "  '"  ■  """"">' 
nal.le  state  it  offers  verv  ""■'"■  '"  "  '•^'"'*- 

!^ti.e.,V.re.i„i:,:^      ;;^,^;-=;jese„rehf„r 

-ten  prospective  n.in's  n^     rZ^'^ 

not  too  low  an  estimate     'Pi;     7     '  '^•^^'•"lecl  as 

"Nslv  enters  very  s^  ailv  nt!     n""'*"^  ^■''""^^'  °'"'- 

'"'•"■•'"«  any  retu^:".;    .!,"„:,[  S;;:," M    ""'■""^  "''- 
'IcMly  discover  a  rich  vein      TM  '•''  "'">'  *""'- 

''-.t  a  lar^e  arnou^Vo  eapil  inrZr""  *^"'^  *" 
'     "'-i^'h   is   unprochictive'    Iv  Zt  ,  «• '""^''' 

'<ver"  is  rarelv  of  benefit  tn  .      ^'''""   "^   «°''J 

-tcJ  from  indust     ro    *a  L?a"?\'^t*''' '' •^'■- 
*"<hly  renmneraf.-e  charactnr       "".^'"^t"'^  »'«t  more 

mining  which  is  f n  m  '  ""'^  "  ^-^I^nd«l  upon 

g  nrncli  ,s  fruitless  more  often  than  not 

'*•  V  teo  hiuh  of  gold  devotifx     r-^i  i  i        • 

'-e  looked  upon  as^tsisttr^"^?  f  t??  ."'^ 
"nc  IS  the  deno^Jf  ^e      i  i-     ,         ""v   °'   two  kinds — 
deposit  of  relatively  low  grade  o,*,  the  ore 
78 


76 


ECONOMICS 


being  very  abundant  and  containing  gold  througliovit 
the  whole  body;  the  other  is  a  deposit  in  which  the  ore 
is  characterized  by  veins  of  occasional  but  exceeding 
richness.  The  deposits  of  the  Rand  in  Soutli  ^Vfrica 
are  of  the  former,  those  of  Porcupine  in  Ontario  are 
of  the  latter  description.  The  first  mentioned  ore  re- 
quires only  economical  treatment  by  mechanical  or 
chemical  means  or  both  to  yield  a  return  more  or  less  in 
excess  of  the  cost  of  mining,  and  under  skillful  man- 
agement may  he  made  to  yield  a  handsome  return. 
Such  mining  requires,  however,  large  capital  expendi- 
tures in  plants  for  tlie  treatment  of  the  ore  and  a  rela- 
tively large  amount  of  labor. 

The  large  returns  from  the  South  African  mines  have 
been  due  to  the  discovery  of  means  to  treat  the  ore  in 
such  a  way  as  to  recover  nearly  all  the  gold  it  contains, 
and  to  the  availability  of  a  practically  unlimited  supjily 
of  labor  at  a  low  price.  The  disturbance  of  economical 
relations  caused  by  the  South  African  war  resulted  for 
a  time  in  great  difficulty  in  procuring  labor.  The 
Kaffirs,  who  had  been  working  in  the  mities  for  low- 
wages,  suddenly  found  themselves  enriched  by  the  much 
higher  pay  which  they  received  for  their  services  as 
muleteers  and  otherwise  during  tiie  war.  They  wei* 
enabled  by  means  of  their  savings  to  buy  wives  to  work 
for  them,  and  they  were  therefore  able  to  anticipate  a 
life  of  ease. 

Under  these  circumstances  the  mines  were  deserted, 
and  they  could  only  have  been  re-manned  by  Kaffirs 
by  means  of  a  system  of  forced  labor,  which  pulilic 
opinion  in  Great  Britain  would  not  have  permitted. 
The  mine  owners  then  imported  Chinese  laborers,  wlio 
were  willing  to  work  for  the  wages  offered  to  tiiem; 
but  this  system  also  had  its  drawbacks  and  objections. 


MINING  -- 

Tl>e  effects  of  the  war  have  been  passing  away  in  co„ 
se.,ue,.ce  of  the  lapse  of  time,  and  the  labor  conditZ' 
prevous  to  the  war  have  been  gradually  resumed  S 
occasional  interruptions.  'c»umea,  with 

73.  Goldmmug  in  British  Columbia.-In  British 

ment  of  the  ore  requires  the  application  of  a  con   de r-' 
al  le  amount  of  capital  and  the  employment  of  a  con 
Klerab  e  amount  of  labor.    But  there  is  no  large  native 
population  to  draw  upon.    The  total  populat  fn  of  1 1 ! 

krtta  have  i»i  ta^te  to  .,pi„i,.,te„,  .rd";tte 

h!.    1     t        .  ""  Pi'I^rto-lely  exploited,  bee.,,- 
fc-re  ]»,  been  ,„.uffieie„t  f„,  h,„Me    .bor     S M 

c  lor  me  iJntish  Columbia  ores,  and  the  nroH.,n 

«eHb.Hd.,,pjLr,iv=rp^ 

trihlf""',  """'"^rSilver  is  much  more  widely  dis- 
tnl.  ted,  an,],  as  a  rule,  much  more  easily  recovered  from 

II.  ■Kxchange."  '         '"^  "'""<^'"'' ""«  fluctuations  of  prices.      See ^rt 


1"; 


78 


ECONO.MUS 


the  ores  in  which  it  is  contained  than  gold.  The  (juan- 
tity  of  silver  available  for  nse  at  a  particular  moment  in 
relation  to  the  quantity  of  gold  similarly  available  has 
varied  greatly  in  historical  times.  Silver  has,  however, 
become  gradually  much  more  abundant.  The  value  of 
silver  in  terms  of  gold,  that  is,  the  number  of  ounces 
troy  of  silver  which  may  be  purchased  by  one  ounce  troy 
of  gold  in  the  early  part  of  the  fifteenth  century  was 
about  11  to  1;  during  nearly  a  hundred  years,  between 
the  end  of  the  eighteenth  century  and  1873,  the  value 
remained  about  15  to  1 ;  since  then  the  value  has  fallen 
to  about  35  to  1. 

77.  Decline  in  value  of  si'/i'tr.— This  great  change  has 
been  produced  by  several  causes.  The  more  important  of 
these  are  the  increase  of  produttion  and  the  diminution 
of  consumption  of  silver  for  currency  purposes,  and — es- 
pecially between  1870  and  1886— the  comparatively  slen- 
der production  of  gold  and  the  increasing  use  of  that 
metal  for  currency  purposes.  Until  the  period  of  the 
Franco-Prussian  AVar  silver  was  the  predominant  cur- 
rency medium  of  Central  Europe,  and  until  the  present 
time  it  is  the  predominant  currency  medium  of  Mexico, 
China  and  India.  It  also  enters  largely  into  the  cur- 
rency of  the  United  States  in  the  form  of  silver  certifi- 
cates. A  large  part  of  the  metallic  currency  of  the 
world  is  still  in  silver,  and  fresh  supijlies  are  constantly 
being  demanded  for  this  purpose,  but  the  production  of 
silver  has  grown  in  excess  of  this  demand,  and  the  de- 
mand for  industrial  purposes  has  been  insufficient  to 
prevent  the  price  from  falling. 

78.  Attempt  to  s.atain  the  price  of  silver  in  U.  S.—\n 
order  to  attempt  to  avoid  the  demoralization  of  silver 
prices,  the  Bland-Allison  Act  of  1878  was  passed  in  the 
United  States.     That  act  provided  for  the  purchase  of 


MINING 


between  $2,000,000  and  $4,000, 
market  j)rice  each 


79 


.000  worth  of  silver  at  tlie 


month,  and  its  coinar 
lars  weighing  4121/.  .rraln,     ti,  ',",7  "" '"'  ""'" 

however  as  l,Jh  T    ■         '^  ^'^''" ''°"»"  '"^  •"•*. 

nowever,  as  such,  go  into  circulation.     Tl,e  silver  circn 
lation  consisted  of  silver  certificnt,.«     I   t 
TSRfi  of  «./.      J  certihcates— hetween  1878  and 

1886  of  $10  and  upwards,  and  between  1886  end  iSo 
01  Jpl  and  upwards.    The  «Iar.,l  aii-         »  <^"u  laju 

Art  ,„™..a  ..e  p„„,.„  „,  ,,,„  ,„  «i«"™ 
monetary  ouestion.      ii  ""  'liscuss.on  on 

effect  u7on''rs;";p,/nii:r''T.;:"i;    -^  ^^^ 

to  be  to  linut  the'prod  J  „  :>  Jl  ert     nTrl 

rhe  Sherman  Act  was  in  force  for  three  years  abont 
fifty  million  dollars  a  year  being  coined  in  X 
"f  that  period.    By  1893  it  becaL  e"  lent  £  IZT 
beyond  the  power  of  the  Government  of  the  UnHed 
States  to  sustain  the  price  of  silver  by  means  of  J 

.  «p™,  the  pnce,  p„„ded  th.  „pp|y  „  „„„„  ,, 


fftf 


80 


ECONOAIICS 


ill  excess  of  the  demand  of  the  moment.  British  Cohmi- 
bia  produces  a  considerable  amount  of  silver  concen- 
trates recovered  from  Galena  or  silver  lead  ore.  Cobalt 
produces,  on  the  other  hand,  native  silver  as  well  as  silver 
in  other  forms.  The  cobalt  ores  are  treated  in  reduction 
works  at  Thorold,  Ontario;  but  the  concentrates  are  sent 
to  the  United  States  to  be  refined. 

80.  Mining  camps  tend  to  raise  prices. — The  silver 
mines  at  Cobalt  have  attracted  miners  from  all  over  the 
world,  as  did  the  gold  mines  of  British  Columbia  in 
1896.  Towns  have  sprung  up  throughout  the  minin;^ 
region,  and  consumption  in  these  towns  has  increased 
the  demand  for  farm  and  garden  prwluce  from  south- 
ern Ontario,  and  for  canned  meats  and  fruits  from  the 
United  States  as  well  as  from  the  province.  Since  su])- 
plies  have  frequently  to  be  taken  to  regions  remote  from 
railway  or  even  wagon  transportation — have,  indeed,  to 
be  "packed"  in  on  the  backs  of  men — the  cost  of  trans- 
portation forms  so  large  a  part  of  the  total  cost  tiiat 
only  the  best  qualities  of  the  various  commodities  con- 
sumed by  miners  and  prospectors  are  customarily  sent 
to  mining  regions.  The  opening  up  of  a  mining  region 
thus  alters  the  character  of  demand,  and  tends  to  raise 
the  prices  of  superior  qualities  of  the  commodities  cdti- 
sumed  by  mining  camps.  Nearly  every  year  "rushes" 
take  place  to  newly  discovered  mining  areas  and  some- 
times the  older  camps  are  practically  deserted. 

Occasionally  unusual  features  develop  in  the  relations 
of  capital  and  labor.  Miners  who  believe  in  a  mine  will 
sometimes  take  bare  subsistence  in  kind  from  the  owners, 
and  will  take  the  balance  of  their  stipulated  wages  in  tlie 
r  ':ock  of  the  mine  either  at  the  market  price  or  at  a  price 
fixed  by  agreement  between  them  f.nd  the  owners. 

81.  Copper  mining. — The  existence  Of  native  copptr 


MINING  J,, 

known  rthoT'r''°""-'  ^''""^  "'  ^^"''^  Superior  was 
kno„n  to  the  Indians  ,„  the  seventeenth  cent.irv   a,„i 

at  Sudbury  ,„  Ontario.    The  Michigan  mines  have  tec 
enormously  pr„,h.etive  during  n^cen't  years    the  eaj^t 
' T  the.r  expIo,tation  having,  been  obtained   thZlh 
Amencan  credit  lar,.ely  fron,  Europe.     Tte  labor  ha 
j.^  been  re,,  f,„„  ,,„,„p^^  J     ^^J^^j  has 

r^Z  s     7;"'""^r*'""':'"'^^  ''•''^•'^  Sone  into  the  cop- 
anTprolX        "'""  '""  '^^^'^P'^'  ^"^'"^""^ 

u-d  m  assoe,at,on  with  steel  in  the  manufacture  of  armor 
plates  IS  produced  at  Sudbury. 
83.  /ron  miwV.-Iron  ore  was  shipped  from  V.V 

;;n,a  from  the  beginning  of  the  seventeenThtnry.Iid 
m  1G19  smeltmg  works  were  erected  near  Richmond 

rs™:'f    """•  ''^^^"^^'^  "^  ^''^  Indians  inT^': 

A  sme  t  ,g  furnace  was  erected  in  1643  at  Lynn,  Mass 

A    this  period  the  manufacture  of  iron  was  s^nH 

-11  affair  in  Europe.    Sweden  was  the  prL^Tl  Zol 

f  supp  y  until  in  the  beginning  of  the  eighteenth  cen 

tuo'  Peter  the  Great  established  large  works  hv  m 

"f  forced  labor  in  the  Ural  Mountain  .    In  ,722  the" 

works^proaueed  the  bulk  of  the  iron  il^nV^  'J^Z 

c-i-e 


82 


ECONOMICS 


The  iron  industry  of  Great  Britain  did  not  become 
important  until  after  the  middle  of  the  eighteenth  cen- 
tury. Colonial  pig-iron  was  permitted  to  enter  Great 
Britain  free  of  duty  in  1750,  although  the  erection  of 
rolling  and  other  mills  for  the  manufacture  of  iron  bars 
and  plates  and  of  furnaces  for  the  manufacture  of  steel 
was  prohibited  in  the  jVmerican  colonies. 

84.  Iron  industri)  in  U.  S. — It  was  not  until  the  dis- 
covery of  anthracite  coal  in  the  beginning  of  the  nine- 
teenth century  that  iron  smelting  on  any  large  scale  was 
possible  in  America.  This  event  led  to  the  discovery  of 
new  sources  for  the  supply  of  ore  and  to  the  rapid  de- 
velopment of  the  industry.  Pittsburg  became  at  this 
time  the  center  of  iron  manufacture.  The  war  of  18T2- 
14  stimulated  all  manufactures  in  the  United  Status 
because  it  shut  off  for  the  time  the  competition  of  Brit- 
ish manufacturers. 

Peace  brought  so  great  a  "glut"  of  imports  that  many 
of  the  iron  furnaces  on  the  coast  were  "blown  out." 
Pittsburg  was  saved  by  the  mere  fact  of  distanci  Grad- 
ually the  discovery  of  fresh  sources  of  supply,  both  of 
coal  and  iron,  and  the  application  of  capital  and  labor 
to  their  exploitation  brought  iron  manufacture  to  a  high 
point.  After  the  Civ;'  War,  the  requirements  of  the 
railways,  which  then  came  into  existence,  were  too  great 
for  the  American  iron  manufacturer  at  this  stage  of 
development,  and  great  quantities  of  iron  rails  were 
importe<l  from  Great  Britain.  The  results  in  that  coun- 
try were  great  increases  in  the  price  of  iron,  in  its  pro- 
duction, ill  the  price  of  coal,  and  in  the  rate  of  wages  in 
the  iron  and  coal  industries. 

The  construction  of  railwayj  gave,  however,  an  im- 
mense .stimulus  to  iron  and  steel  manufacture,  although 
there  were  temporary  checks  due  to  the  over-constnic- 


MINING 


tion  of  railways  wl.ich  l«;ean.c  nmnifest 


to  the 


83 


in  1873  and  due 


panic  of  1803.     Since  then  the  n.anu^aetur 


ron  ami  steel  has  devel„p«|  to  s„eh  prodi« 


:iou.s  pn)|)()r- 


vltion  r  ■*''  *"    '"  "■'^'"''  "^  "-  •^■"t-"«I  t'""- 

>'i    he  Lake  S„,K;nor  region  will  he  exhausted  hv  1039 

es     Meanwhde.  owu.^r  to  the  richness  r.f  the  ores  and 
o  then-  ready  aeeessihility,  An.eriean  iron  is  prohal 
l-"g  procluce.!  „,ore  cheaply  than  European  iron    n 
spite  of  the  ^n-eater  eost  of  labor.     The  operat    ns  nf 

ally  ,n  the  ITn.te.j  states  as  they  are  in  Europe  whe  . 
.!.Jxplo.tat.on  of  the  n.ineral  areas  is  eonsideL  as  1 

85.  More  economical  handling.~U  seems  that  .Inn. 

he  hands  of  large  compa.nes-the  I  'nited  States  Steel 
Corporation  ehiefly-the  exploitation  of  the  ore  s  be  nl 
condue  ed  with  greater  economy  than  was  the  ea  e  vS^n 
1^  was  m  the  hands  of  small  companies.     The  M^i 

the  whole  of  the  dr>ft  overlymg  the  bodies  of  ore  has 
fen  stnpped,  so  that  the  operation  of  extracting  the  ore 

can  te  extracted  by  systematic  work.    It  is  true   how 
-er.  that  the  masses  of  low-grade  ore  are  Lt  "l.Z" 
T     nehest  ore  is  taken  out  first;  later,  as  the  pr ce'^ 
H.   advances  m  consequence  of  the  exhaustion  of  t^ 
l'.«  -gra.le  ore   the  interior  ore  masses  will  be  wo  ke 

«<-.  Iron  vuning  ^„  Can„da.--lrou  mining  in  Canada 
^- also  a,^ a„  early  date;  hut  the  difficulty  of  pZ  ! 
i"S  labor  and  cap.tal,  the  absence  of  skill  on  the  IJZ 
.son.e  of  the  earlier  enterprisers,  and  the  chara    er  o   t  ; 


84 


ECONOMICS 


ore,  (Iclayed  the  (Icveloprni-iit  of  the  iiiduiitry.  Tlie  smelt- 
ing of  l)ojf-iron  was,  however,  earried  on  siiecessfully,  al- 
though on  a  nicxlerate  seale,  j)rior  to  the  growth,  witliiii 
recent  years,  of  the  iron  and  steel  industry  at  Sault  Ste. 
Marie  and  at  Sydney,  Ca|)e  Breton.  The  estahlishnient 
of  these  large  enterprises  has  hronght  ahoiit  a  demand 
for  iron  ores.  This  demand  has  been  .satisfied  until  the 
present  time,  chiefly  by  Newfoundland  and  by  the 
United  States. 

87.  Coal  mining. — Coal  is  very  widely  distributed  over 
the  world.  The  most  '■xtensive  known  deposits,  exist- 
ing at  depths  which  enable  them  to  Ik;  exploited  in  the 
present  pliase  of  exploitation  (a  phase  limited  jjartly  by 
the  cost  of  mining  and  partly  by  the  state  of  technical 
knowledge ) ,  are  to  be  found  in  Europe,  in  Great  Britain, 
France,  Belgium,  Gerniauy  and  Russia;  in  Asia,  in 
China  proper  and  in  Manchuria;  r.id  in  North  America, 
in  the  United  States  and  in  Canada.  The  active  exploi- 
tation of  coal  began  about  the  middle  of  the  eighteentli 
century;  but  it  was  not  until  the  improvement  of  the 
steam  engine  by  Watt  in  1776  that  a  real  impetus  was 
given  to  its  exploitation  for  industrial  purposes.  Tlit 
application  of  steam  power  to  marine  propulsion,  fol- 
lowed immediately  by  its  application  to  land  locomotion, 
led  during  the  nineteenth  century  to  enormous  develop- 
ment of  the  coal  fields. 

In  the  United  States  the  chief  coal  fields  are  the  East- 
ern, which  extends  over  a  great  part  of  the  States  of  New- 
York,  Pennsylvania,  Ohio,  West  Virginia  and  Louis- 
iana; the  middle  coal  field,  whicli  extends  over  nearly 
the  whole  of  Illinois  and  a  part  of  Indiana;  and  the 
Western  field,  which  extends  over  a  part  of  North  Da- 
kota and  a  part  of  Montana.  There  are  other  smaller 
and  less  productive  fields.     In  Canada,  coal  is  mined  in 


MI  VINT, 


Xova  Scotia,  in  ManitoLa 


Hii 


I'tTta  arxl  ii,  Hriti.sl,  (  „1,„„| 


(to  a  small  extent),  in  A I 


in  Ontarl,,.  '""•    '''''•^^'■^"  '■*  '">  true  e..;.| 

lateral  cutting,  an.l  en  „.Mi  ^  i' '  """'  ^'""'  '"  " 
c'uttinK  i..vol.?s  n  '  7  "•'""""'  '""t  in  a  vertical 
and  capital     mtlv^l   "   ""  "  ff* """'  "'""""*  "^  >«''"■• 

'ir«l  feet  of  a  mh  e  c  ,     t?"' r"""-;  *''"*  *'"  "'••^*  '""'- 
either  laterally  or  v^rtlc^     *       "        ""  "'  *'"  ""'"^ 

-7  th^  law  of  .li.;;;:,.^  re  ..;:r:7,  ^"  v^- 

Alberta.  andTuTer^t  it"  '* ''■^"'  "'  ^'^''"*''-" 

Sions).thesubse"ueZpe  toZ';:^'"  "'"""*---  - 
itated  by  careful  pIp,  .     ''^ '"'"^^ '''» '^e  facil- 

^^-^^":tS'ziz^iSzi:s^  «^e  start 

necessary,  the  roof  of  the  mine  \fT^  "P'  ^''^''^ 
f»"  of  the  roof  .ay.  on  L™  .  bWrt'Lti„t""%*'!: 
".ay  be  necessary  to  recut  throu^l/thelilet  /,  '  ^""t  ',* 
■nay  not  be  coal,  and  which  wH     ttere  ire  1'  "'"'■'' 

returnable  expense  in  removing  ""'  '"^'"'^^  "'- 

'-er  to  yield  the  .st^:ri^^:;;rs-::; 


80 


lUONOMICS 


ss 


ami  ill  (ircnt  Hritain,  for  iiistuiice,  is  customarily  carried 
on  ill  this  manlier.  The  coal  is  wholly  cxliaiistnl  from 
OIK'  icctioii  i>(  a  mine  iK'forc  serious  attem|>ts  are  made 
to  exploil  any  other  section.  The  mine  is  indeed  l(H)ked 
at  as  a  whole,  which  has  to  he  exploited  thoroiijihiy,  jiart 
hy  part.  ^Vhen  the  mine  has  lieeii  worked  until,  owiiijr 
to  the  lateral  extension  of  its  workiii){s,  new  .shafts  he- 
come  necessary  for  more  economical  management,  new 
shafts  are  sunk.  ^Vhen  the  seams  "dip"  to  such  an  ex- 
tent that  the  cost  of  iiiining  liccomes  prohihitive,  the  (let  p 
workings,  after  heing  exiiausted  so  far  as  is  jiossihle  in 
an  economic  sense,  are  abaiidone<l ;  hut  they  remain  in 
such  a  condition  that,  except  for  accidental  falls  in  the 
roofs  of  the  galleries  owing  to  decay  of  the  pit  props  iir 
other  causes,  the  mine  might  be  reopened  to  resume  the 
deeper  workings.  Tiiis  would  l)e  done  if  the  price  of  coal 
should  advance  owing  to  scarcity  or  if  technical  improve- 
ments in  mining  should  render  this  proceeding  advan- 
tageous, irrespective  of  the  momentary  conditions  of  tiie 
market. 

90.  Waste  in  American  coal  mining. — According  to 
the  reports  of  the  Anthracite  Coal  Commission  and  of 
the  National  Conservation  Commission,  coal  mining  in 
tlie  I'nited  States  is  not  carried  on  in  the  manner  de- 
scribed above.  The  reports  made  public  facts  about  the 
exploitation  of  coal  which  were  long  previously  well 
known  to  those  who  were  interested  in  the  subject.  Tiuse 
facts  led  to  the  conclusion  that  in  respect  to  anthracite 
coal,  about  one  and  a  half  tons  were  wasted  and  that  in 
respect  to  bituminous  coal,  about  one-half  ton  was  wasted 
for  each  ton  respectively  placed  upon  the  market.  Tliis 
waste,  it  appears,  was  occasioned  partly  by  the  ado])ti<)n 
of  the  practice  of  leaving  columns  of  coal  in  the  mine  to 
support  the  roof  instead  of  propping  the  roof  with  tini- 


MtMXO 


l*r.s  and  exlm,    iinff  Uk:  coal;  partly  by  , 


H7 


workinj^  the 


of  their  levels,  thus  Ica.l 
vin^  to  th( 


"IW  to  the  caviuff  in  of 


rres|)eetiv< 


riiirie> 


not  having, .en!  wliirT''":"  "7'  '"  '"'  """"-  -"""< 
it  has  to  t  h  rned  ^Z:^t"r'''  ""  ^•''*"'*  *""' 

land  which  .i«ht  it  ;;.tt:.;he:i:  "'"^'  ""*  ""^■"^ 

01.  Labor  tn  the  cxpUntathr  industries     T  „K      • 

possession  of  a  homestead  in  r„n  I  ^"'''^^/"'•"'"•'l  *«  the 
in  the  United  State     Therl  "'  "^  "  "'"'^'^  ^»™' 

-Itural  labor  in  d  LrLttry  "bu"tT"'""""  "'  "''''■ 
n-llural  laborers  are  relaH  e  ?h  ,  '"'"^''  "^  "«"- 
-th  whieh  .  labour  etn«S      T?  °'  ""  ^"^« 

^.h™seJfindepend;nt,;:^;::rl?r:-Lti: 
"fthe mining eamps.  for exanmie    „    80 Ji    ""'"''^t'on'' 

;^^.tu.,  laboL.  but  3:i*c:r^'r:^£ 
ercanSr;::.^^-^"""""--^-- 

JImmg  both  for  the  precious  metals  and  for  minerals 
■n  Amenca  manned  by  a  racial  diversified  populata! 


88 


ECONOMICS 


Kxperienced  gold  miners  who  have  worked  in  the  mines 
in  Siberia,  in  the  Kocky  Mountains  and  eliicwherc  are  to 
lie  found  in  the  mining  eunips  <i{  Ontario,  Kritish  Cohini- 
liia  and  the  Yukon.  The  railway  eonstruetion  i-ani|>s. 
which  arc  anaioffous  to  the  mining  eanips  Iwcause  they 
represent  a  partially  organized  type  of  settlement,  con- 
tain also  nomadic  groups — Lithuanians,  Finlanders, 
tussians  proper,  Bulgarians,  Swedes,  Italians,  Gali- 
cians  and  Kuthenians. 

In  Europe  the  lalxirers  employed  in  the  extractive  in- 
dustries are,  in  general,  hereditarily  so  employed — agri- 
cultural laborers  are  the  sons  of  agricultural  laborers, 
as  miners  are  the  sons  of  miners.  In  Scotland,  however, 
of  late  years  the  coal  mines  have  l)een  increasingly 
manned  by  liithuanians  and  by  laborers  of  other  north- 
em  European  races. 


CHAPTEll   VIII 

MAM;FA(TLIU.V(i    STMiV.    OK    PROOICTION 

02.  Cl,aractcrulic»    of    complc.r    production -The 
liaraetenstics  of  nmnufa.-lure  I  v  the  mefl ll  „?"  • 
pM.^io„  have  a.e„.,y  ,.„,  ats^,^':;:^ ^^^^^^ 
cs  .f  manufacture  in  con.plex  pro,luction  arc  clmfly 

ms     nd  £^'r;.''  r.""^""'"  -^  '-^^^  numbers  of  per- 

through  the  numerous  phases  which  come  between  ex- 
...  at.on  o    the  raw  material  ami  the  final  J  ^e  y  of  • 
.I.C  consumable  pnxluct  to  the  ultimate  purchaser  or  L;. 

It  is  the  function  of  the  man.,faet.irer  to  .-rform 

^s;  oM^e" ""'  •"=  '?""'""•  *"  '^•'  '♦  "/^h'r 

P>"yero,.manufactu«.rcannTwlinlZt":rhfs:'"' 
--.-function  sustain  the  burden  JlllZl^Zn 

-nff  employer  to  retain  his  product  un«l  hJ.^^""' 

^''an.e  it  at  the  most  advantaS";";,-::*'  '^  ""  ^•^- 

■'-i-  Specialization   in    manufacturing —Ono   nf   ti. 

89 


90 


ECONOMICS 


tion  leads  to  the  formation  of  large  enterprises  for  the 
manufacture  of  commodities  which  are  not  final,  but 
which  are  destined  to  enter  as  raw  material  into  tlic 
manufacture  of  more  or  less  final  commodities.  Thus  the 
steel  tubes  which  enter  into  the  structure  of  a  bicycle 
are  manufactured  by  one  concern,  the  india-rubber  tires 
by  another,  and  so  on,  the  bicycle  being  assembled  in 
some  cases  in  a  workshop  where  no  single  part  of  it  is  or 
can  be  made.  The  same  is  true  of  pianos  and  of  many 
other  commodities. 

This  distribution  of  manufacturing  function  has  been 
accompanied  by  concentration  in  other  directions,  and 
this  concentration  has  been  due  chiefly  to  two  influences; 
first,  the  desire  to  diminisn  competition  by  the  amalga- 
mation of  two  or  more  competitive  enterprises,  and,  sec- 
ond, the  desire  to  reduce  the  cost  of  production  by  the 
diminution  of  the  general  expenses  of  management.  The 
expectations  implied  in  these  influences  cannot  be  said 
to  have  been  fully  realized  in  practice.  Increase  in  mag- 
nitude of  an  industrial  unit  demands  increase  of  skill  in 
management,  and  this  increase  of  skill  is  not  always 
forthcoming.  Increase  in  magnitude  of  a  factory  com- 
promises the  economy  of  interior  management  and  often 
requires  the  complete  reconstruction  of  the  factory  not 
because  its  parts  are  worn  out,  but  because  their  relations 
to  one  another  have  been  altered  by  the  additions  to  cer- 
tain parts.  The  gross  gain  must  thus  be  subjected  to  de- 
duction in  respect  to  the  increase  in  costs  of  certain  ele- 
ments. 

94.  Localization  of  industries. — The  industrial  cities 
of  Europe  have,  as  a  rule,  grown  upon  ancient  sites  se- 
lected on  grounds  of  military  or  commercial  strategy 
under  conditions  that  have  long  passed.  The  importance 
of  some  of  these  cities  (like  Venice,  Nuremberg  and  Re- 


'i^bjim    '?' 


MANUFACTL'lUNG  STAGK  OV  PRODUCTION-      91 
Kensburg,  for  exan,ple)   has  become  of  small  account 

anJ  Ld  nburgh)   have  retained  their  earlier  fame  and 
i^ve  added  to  it  the  influence  acquired  in  modern  tin 
ri  e  locahzation  of  ,n,l„stry  is  by  no  mear.s  a  new  tend- 

elebrat.H  f     T"  '""'f  '''''  ^''"^''  «"''  Ghent  Mere 
tclebrated  for  the.r  woolen  clotlis,  as  in  later  times  Ver- 

ners  became  celebrate,!  for  its  fine  woolen  yarns.  Paisley 

for  thread.  Manchester  for  cotton,  the  west  of  EnglanJ 

and  the  south  of  Scotland  for  tweeds.  Sheffield  and  Sol- 

,ngen  for  cutlery  and  Edinburgh  for  beer  and  for  prin  - 

Z    tl     1."^"'^ •  '*"*"•  *'"  "■"'•''*^''  -'^  -«on  il^dus- 
tnes,  the  shoemakmg  industry  and  others  have  been 

.  rong  y  concentrated  in  the  Xew  England  towns;  De- 

ro,t  has  developed  a  great  automobile  industry;  Pitts- 

^cture.  In  Canada,  Montreal,  Toronto,  Kingston 
Ham,  ton  and  Sherbrooke  have  become  importanfcen 
rrrL"">      ,""'""'  '"^'^hanieal  industries;  Sherbrooke 

motives.  Peterborough  m  electrical  machinery,  Alontreal 
■n  br.dge  bu,lding  and  in  sugar  refining.  Torol  o     .d 
Brantford  m  agricultural  machinen'.    A  process  analo 
gous  to  the  division  of  labor  has  be™  in  progress 

locartv  for  *  '"  Z"?''"^  "«  industry.-The  choice  of 
oca>.ty  for  a  particular  industry  depends  upon  a  yarietv 
f  considerations,  among  which  the  mor«>  important  are 
.e  acihties  for  transporting  the  raw  materrand  tl" 
nished  product,  the  facilities  for  obtaining  a  good  wa- 
ter supply  (indispensable  in  the  case  of  paper  S    or 

stance)  thefacilitiesforobtainingpowLLdZfacn 
^eforobtaimng labor.  The  textile  and  shoemakingi  - 
Justnes  are  more  advantageously  established  in  the IKo  !. 


i 


92 


ECONOMICS 


ince  of  Quebec  than  they  can  be  in  Ontario,  because  of 
the  greater  amplitude  of  the  supply  of  female  labor.  Of 
slightly  less  importance  are  the  cost  of  land,  the  rate  of 
local  taxation,  the  j)ossibility  of  obtaining  exemption 
from  taxation  or  of  obtaining  a  bonus  from  a  municipal- 
ity, and  the  like. 

9().  Effect  of  ■^tale  and  female  labor  upon  location- 
While  the  relative  ease  with  which  labor  can  be  obtained 
in  already  existing  centers  of  population  constitutes  :i 
strong  reason  why  manufactures  should  be  drawn  to 
these  centers,  sometimes  there  has  been  a  disposition  on 
the  part  of  manufacturers  to  establish  works  in  small  but 
readily  accessible  places.  Examples  of  this  are  tlie 
growth  of  a  rubber  industry,  a  piano  industry  and  a  drug 
industry  in  small  towns  in  Ontario.  This  practice  tends 
to  prevent  industrial  activity  from  being  confined  to  one 
or  two  great  centers  and  contributes  to  the  prosperity  of 
the  agricultural  region  in  the  neighborhood  of  these 
subordinate  industrial  centers. 

Unless,  however,  industries  which  are  complementary 
to  one  another  in  respect  to  male  and  female  labor  are 
established  together,  difficulty  must  be  experienced  in 
obtaining  labor.  Towns  where  men  or  women  respec- 
tively are  exclusively  i.mployed  are  industrial  anomalies. 
For  this  reason  places  where  textile  factories,  in  wliieli 
women  are  predominantly  employed,  are  establislied, 
generally  attract  engineering  or  other  similar  works 
where  men  are  exclusively  or  predominantly  employed. 

The  municipal  governments  of  the  Canadian  cities  ant! 
towns  have  endeavored  to  attract  industries  by  means 
of  bonuses  and  exemption  from  taxation;  and  in  tlie 
United  States  attempts  have  been  made  by  means  of  dif- 
ferential railway  rates  to  compensate  for  deficient  natu- 
ral advantages,  and  thus  to  equalize  economic  opporlu- 


MAXUKACTUHIXG  STAGE  OF  PHODUCTION     93 
.ree,  and  auto^lliZltZX^''  "V"'  *°  »  '"^''  '^- 

been  i„.p„r„t  ^aZ  tth  rr'''"'°r '  ^"•'"■- ''"- 

lia^  e  resulted  Yet  h^T'  f  ^^^  economies  which 
mllv  by  the  use  of  ?  !•  ''^'''"''■''"^'""•""d^^Pe- 
a  farf     Tf  1  •      .   "'  er  production  is,  neverthplpc« 

^r  tVehirttizrs?  ''r  r  -""^  ^i- 

there  is  no  law  of  nature  Ir  ^  ^"'''''"^^'  commodity, 
the  increased  quiitry  f  ^^^^^^^^  \'T'''  ^"^ 
o-Iy  below  the  dimi^hed  expense  0^1  k  """■ 
clear  that  the  whole  nf  +»,»  •  P^"^^  "*  production,  it  is 
te  demanded!  '""'^^  1"^"*'ty  '"ight  not 

in  liLh  tTrtr,:  S:^"  *'"-«'•  ^  '-^^  ^-*- 

tured.    He  was  shown  1  ^^  """l^^P"""  ^««  manufac- 

-matic  m:i-^z::t  Tpo':t  L'r '^  °^  ^'-^ 

parts  of  the  staple  eommoditronly  one  of  t^  "''"" 
«peration,  and  it  was  evident^om  the  ""*'  '" 

*e  others  that  they  had  norbee;^  op  ralTr"  "' 

"^"!e  industry;  lT:Sdpr:.S;Cber~'^ 
nerj  from  some  concern  which  undertook  to  sup! 


\=^t,'  ■*' 


94 


ECONOMICS 


ply  the  whole  trade  than  to  inst&l  in  individiial  factories 
at  great  expense  a  battery  of  rarely  used  machines. 

In  every  nation  every  year  a  certain  portion  of  tlif 
national  income — public  and  piivate  incomej  being  taken 
into  account — as  well  as  the  major  portion  of  the  funds 
borrowed  within  the  nation  or  abroad,  are  devoted  to 
the  productian  of  commodities  whose  production  oc- 
cupies a  long  time  and  vi-hose  utilities  are  yielded  very 
gradually  over  a  long  j)eriod.  Of  this  nature  are  rail- 
ways, canals,  docks,  waterworks,  hydro-electrical  plants 
and  durable  machinery  of  all  kinds,  steamships,  public 
and  private  buildings,  roads,  streets,  and  the  like. 

Out  of  the  national  income  there  is  expended  a  further 
portion  upon  production  which  yields  more  or  less  imme- 
diately realizable  utilities  Of  this  nature  is  the  expendi- 
ture upon  seed  grain  an''  the  like;  upon  clothing  and 
upon  the  numerous  things  which  satisfy  our  daily  wants. 
It  is  clear  that  it  is  a  matter  of  the  utmost  social  impor- 
tance that  a  certain  proportion  should  exist  in  respect 
to  these  two  forms  of  expenditure.  If  a  farmer  were  to 
occupy  the  whole  of  his  time  and  his  resources  in  buikiini; 
a  house  for  himself  while  his  fields  were  lying  idle,  lie 
would  soon  involve  himself  in  difficulties.  Some  portion 
of  his  time  and  resources  might  be  advantageously  so 
expended,  but  not  the  whole. 

08.  Over-production  of  articles  of  future  usefulness. 
— Highly  durable  commodities  yield  their  utilities  over 
a  long  period — the  fact  that  they  do  so  constitutes  their 
durability.  They  are,  therefore,  under  normal  condi- 
tions higlily  valued.  Under  conditions,  liowe\er.  in 
which  there  is  immediate  need  of  commodities  for  itnnio- 
diate  cotisiimption,  the  offer  of  remote  utilities  is  oesidi' 
the  question.  To  offer  a  starving  man  a  stcan^sbip  or » 
railway  would  be  at  least  irrelevant.     If  a  banker  werei 


to  lend  or  invest  more  th 

t"tal  assets  upon  land  orZllTJ'^'l  Proportion  of  J,is 

^elf  unable  to  meet  hi,  ^n    "'''''"^''>  ''«  mi^W.t  find  l,i,„. 

-;"v  to  .aii.e"To;rsSer  xftr "'  "'^  '- 

»r  a  country  or  if  a  large  number  nV  •  1  !  «"^ernment 
"o  one  individual  may  do  "u  '"'l'^«'""'«  d<>  what 

t-n-vi^..  spend  a  Zprono  ti  ""'^""'*'' '"  "'"  ^•'""- 
-urces  of  the  count  v  aTa  "  """"""^  °^  ""^  ■•^- 
I-rnmnent  utilities-no  maUefr  "?'"*  '"  '"'*'''''y 
Penditure  may  have  been  nn  '  ^"^''''^^^^  *''«  ex- 

-  private  policy-:eSIs^''"^^^'?r'^  "^  P"'"- 
Pl'ennmenon  is  really  o^oTov       '    ."""^  °'^''"'--     The 
99.  Ovcr-nrnrJ,.  7      \      °^er-production. 
^^i-r-production  of  railu-nim     tu 

too  many  miles  of  railwa^  fromT""^  """y  ""*  ^-^ 
traveler  or  the  trader  but  «!!!^  *'''  P°'"*  "^  ^''^^  "^  the 
the  point  of  view  of  the  cWti  I     ""'"^  ^  "^  '"''"^  f™'" 
that  the  fixed  charges  on  ^nLrhr^r*-    ^^  '•^«'-'' 
in  consequence  of  its  rat,M  .7       '•''        '""^  '°  heavy 
ter  ho,v  economically   he  Ine-^"""""'  '^''  »°  ">«*- 
how  successful  it  m^  eveiSvT"'"'  'f  ""  ""««" 
a  period  during  which  Ihrnn^       "'""•  ^''"^  ""'^t  be 
payment  of  th!  in    restlZ  •^"i:  T*  ''^'''"'*  '"  *»"-' 
period  itmay  be  forceTLo^Z  ;  L'°"'^\  °"™g  ^^at 
of  the  shareholders  may  be  sa'critr         ^'^  ''''''''' 

•Jver-production  of  railwa      • 
"■^enon.    It  occurred  in  clLl^T^.  ^"  """""'''  Pl>e- 
-d  1848;  it  occurred!  the  nrt.^"*f  ''^*"^^"  ^«4« 
*se  of  the  Civil   ,Var  and  S/J     .^*'*''  ^^*^^»  «'<^ 
^-^aland  in  1875-76    ,>  /  '  '*  °'^™"-«^d  in  New 

^"d  1880.    Such  ove'r  It?''  '"  '^'''^  »-*--«  I67I 

^"d  the  same^turprSr'"""-^^'^'''*^ '''-'' 
^en  pushed  to  an  evtr^me  1,  '  "^'P"""''"^*'""  ''as 
«"«cial  crisis  or  of  c  ^^rV  '  '''""  °'"  P'-"''"«»g  a 
«-  were  as  well   1^'  fu t  "^  *°  ^  "'-  "^  -^^^'h 


96 


ECONOMICS 


100.  Over-production  of  trop*.— There  may  even  bt 
over-production  of  wheat  or  of  any  other  single  crop. 
The  price  of  wheat  falls  to  a  low  point  under  such  con- 
ditions, and  large  numbers  of  people  who  are  consum- 
ers of  wheat  benefit  from  the  fall  in  price  as  weU  as 
those  who  derive  advantage  from  the  reaction  which  a 
fall  in  the  price  of  wheat  produces,  but  the  producers 
suffer.  They  may  have  a  bountiful  crop,  but  its  ex- 
change value  may  be  so  depreciated  that  they  are  ii<.- 
poverished.  This  phenomenon  has  occurred  with  some 
frequency  in  Eastern  Europe.  The  difficulty  of  avoid- 
ing over-production  of  certain  foodstuffs  owing  to  the 
comparative  inflexibility  of  agriculture  has  already  beei! 
noticed. 


CHAPTER  IX 

GETTING  GOODS  TO  MARKET 

J?'/?""^'"'".^  "  ^'^'"^  "f  production—In  petting 
goods  to  the  nmrket  after  their  prmluction  has  been  com- 
pleted, more  IS  mvolved  than  the  mere  transportr.tion  of 
the  goods.  A  market  must  be  fmmd  to  which  the  goods 
may  be  sent ;  m  other  words,  goods  n.ust  he  introduced  to 
he  notice  of  mtending  buyers  or  brought  within  the  vis- 
't'le  supply.  i„  the  large  agricultural  markets  of  Con- 
tmental  Europe   market  officials  and  policemen  bustle 

ll  hC  Tf  ""  '"'■'""''  '"*°  -^I--'  P'--  in  which 
long  Ines  of  hay  wagons,  other  long  lines  of  earts  with 

m,scellaneous  produce,  other  long  hues  of  horses,  Luie. 

group     To  the  pubhc  market  everyone  who  observes  the 
-rket  reg.dat.ons  has  equal  access,  and  in  it  he  has  a 

St  he  b^f    "'T'T^  '^"'^  ''''>'"''  '^'^  to  offer 

aS  tb.?r         '    '■    ^"  ■'*""''  '""••'^'^^^  '*  ^«"  hardly  be 

a.d  that  there  are  any  strategic  points  in  the  long  lines 
of  wagons  and  booths.  ^ 

When  the  goods  are  brought  into  view,  and  a  buyer 

ppears  bargammg  begins.  The  Greek  philosophers 
r  garded  bargaming  as  an  art  stan.ling  apart  from  the 
0  er  arts  separate  from  the  art  of  aJrie'ltLe  wh Lh 
they  cons,dered  as  the  only  productive  art  (i.  e.  theTrt 
|vh.ch  eontnbuted  the  whole  of  the  resources  of   he  pe" 

e;  and  separate  also  from  manufacture  and  the  fine 
c-i-T  '         "     '■'^"'^  *•'"  "*  °^  bargaining 


98 


■ECONOMICS 


r 


as  a  productive  art.  but  neither  did  they  so  consider 
manufacture  and  the  fine  arts.^ 

102.  Circulation  of  capital  an  important  factor.— It 
may  be  observed  that  the  ([uantity  of  the  net  product 
which  is  available  for  the  community  as  a  whole  is  in- 
creased by  rapid,  and  diminished  by  retarded,  circulation 
of  capitai.  If  the  velocity  of  the  circulation  of  capital 
is  increased,  the  output  is  greater,  as  it  would  be  greater 
in  the  case  of  the  product  of  a  piece  of  machinery  if  the 
speed  of  the  machinery  were  increased.  If,  therefore,  a 
producer  has  slender  powers  of  bringing  his  wares  to 
market — if  he  is  a  poor  bargainer,  in  short— he  is  slow 
in  exchanging  his  wares,  and  he  is  therefore  slow  in  pro- 
ducing them.  During  the  same  period  of  time  he  pro- 
duces less  than  a  more  active  bargainer,  and  he  has  fewer 
resources  for  further  production  than  a  more  successful 
bargainer.  The  "national  dividend"  is  in  cor-  equence 
poorer  than  it  would  be  if  both  bargainers  were  equally 
active  and  equally  successful. 

The  idea  that  the  success  or  failure  of  a  bargain  is 
unimportant  to  the  community  appears  to  be  based  upon 
the  notion  that  what  is  a  good  bargain  for  the  seller  must 
be  a  bad  bargain  for  the  buyer,  but  this  is  by  no  means 
the  case.  Even  the  most  astute  seller  is  not  always  able 
to  secure  "the  maximum  advantage"  for  himself.  The 
maxim,  "a  fair  exchange  is  no  robbery,"  is  no  doiilit 
sound,  but  what  is  a  fair  exchange  is  not  always  easily 
determined. 

103.  Injurious  hargaiiiiiiff. — Perhaps  the  most  impor- 
tant case  of  bargaining  is  the  bargaining  about  wajjes. 
If  the  view  be  held  that  wliat  the  man  bargains  about 
is  not  merely  his  labor,  but  his  life,  such  bargaining  is 

'  The  view  lliat  l)iirgainin(!  ia  unproductive  is  held,  althoURh  the  point  "  "»'  1 
rlnbornted.  l>y  I'rofessor  Pigon  in  hia  interesting  and  suggestive  book  «oalt»  | 
and  Welfare"  (p.  109). 


GETTING    GOODS    TO  MARKET  09 

l>y  far  the  most  important  case     TTpw.  u  ^      i       .    . 

son.e  vast  fortunes   b.     so   aU '    ^  "  """^  ''"'''^  "P 

^.-nvalents-isohCiouslvpr;!""!''''     ^  '■"■'■""^"  "' 

■  l'"om"  of  1890-97  ;n  Brit  s"  ColnnW  '  f  °''^-""»'"g 

-.uent  cobalt  silver  ''Z^  l^^tL^:^  '"  *'"  '''" 
-ployed  by  farmers  and  U  HrSm  'n  Tn"  2""^ 

-notman/ctrvelf^aC 'f::;.r'rb\*'^ 
;*on.  involve  the  diversion  of  ft.  L  S.  ^^^  ,*3- 

I'een  devoted  (although  not  necessarilvV  I  ""?''' ''"^'^ 
»r  other  production         ""*  "'^•^^'^"■^''j')  t"  «gncultural 

P";;;it1;^:r?tf  Cttr-'  ^'^  f  «^«---An  im. 
"--MS  the  practice  ol^Stir  El'"  "".fT  '^•""■ 
-.."vertising  by  means  of  tt'TtntrtTf  "'"''' 


100 


KCONOMICS 


i 

1  ■!!, 


csted  was  likely  to  sec  tlicin,  liavc  given  place  to  the 
electric  sign,  the  l)illh<)ar(l,  an«l  the  voliiines  of  advertisi- 
ments  with  a  few  pages  of  text  which  aj)i>ear  monthly 
under  the  covers  of  tlic  popular  niaga/ines.  The  prac- 
tice, in  general,  may  !)e  regarded  us  part  of  the  price 
which  society  has  to  pay  for  its  desire  for  novelty  and 
diversity  in  consumption.  Much  of  it,  for  this  reason, 
results  in  a  diminution  of  the  nationul  resources — that  is, 
in  waste — partly  tecause  the  advertising  is  excessive  ami 
partly  hecause  it  is  advertising  of  useless  or  injurious 
things. 

If  the  skillful  gettingof  a  useful  commodity  to  markit, 
hy  advertisi!ig  or  otherwise,  results  in  .so  great  an  exten- 
sion of  the  market  and  in  tlie  pnKluctioii  of  the  coninind- 
ity  on  so  large  a  scale  that  the  pnxlucer's  price  is  <liinin- 
ished,  and  if  the  market  jjrice  is  brought  down  liy 
competition,  it  is  clear  that  there  is  an  advantage  to  tlif 
consumer.  It  is  true  that  the  "national  dividend"  may 
be  held  to  be  neither  increa.sed  nor  diminishci  because  tlu 
capital  and  labor  which  were  exercised  upoi  the  prodnc- 
tion  in  question  might  have  been  otherwise  equally  pro- 
ductively employed;  but  on  this  ground  it  wtjidd  he  pns- 
sible  to  deny  any  increase  in  the  "national  dividend"  f  I'oiii 
any  source  whatever.  The  increased  production  due  to 
the  increased  demand  makes  possible  the  utilization  el 
machinery  which  increases  the  rate  of  production  per 
man  or  per  machine. 

The  lav  of  increasing  and  diminishing  returns  a|>p!y 
with  very  special  force  to  competitive  advertising.  Tiicre 
is  a  point  which  can,  as  a  rule,  be  determined  only  liy 
experience,  where  no  additional  advertising  can  increase 
sales,  where  such  additional  advertising  would  be  wast'- 
ful  not  merely  from  the  national  point  of  view,  but  also 
from  the  point  of  view  of  the  individual  enterprise. 


GETTING  GOODS  TO  MARKET      ,„, 

105    mwleaale   ami   retail   tra^lc-SomciimcH    the 

IIH.S  praftice  ,«  very  Kcerul  in  certain  trmles.     It  is 
sual  m  ...  pnntiMK  tra.le.,.  „„.,  it  is  the  rule  i,.  the  t«    .  1 

Paper  is  in^eneral  sold  by  the  ,„ill  „t  which  it  i, 
made  to  a  v  holesale  dealer  who  keeps  «  certain  ..Entity 
.hfferent  vanet.es  an.l  from  different  n.ills  i .  sLk-I 
Ik-  pnnter  finds  it  advanta„eo„s  to  huv  his  pape     not 
rmn  the  m.l  s.  because  he  woul.l  re,,u,re-to  have  co  n^ 
....>.  w.th  half  a  dozen  mills,  but  fro'm  a  wholes!""  " 

irom  stock.  The  quantity  he  wants  may  be  too  insiu- 
■n  cant  for  the  mill  to  supply  or  the  n.ill  in  wJic;  U  i 
.ic  may  be  »,  Japan  or  in  England  or  in  German^ 
ll.ehus.ness  of  the  wholesale  dealer  is  to  keep  a  uffi." 
KMt  stock  to  meet  the  .leman.ls  of  the  trade.  The  fu.u^- 
.....  ol  the  wholesale  dealer  has  become  indeed  more  and 
...re  important  as  pro<h.ction  has  become  morTm  scl 
aneous.  The  exclusion  of  the  mid.IIen.an  is  hv  no  m  a  s 
jn^oasy  task  when  the  mi.ldleman  discharges  a  ::Z 

The  retail  tra.ler  also  discharges  a  function  which  ^as 

nahled  h.m  to  contribute  importantly  to  the  organi;;! 

....  of  economic  life  in  modern  comm.mities.    ThI  com- 

la,„t  of  the  fa.mer  on  the  remote  prairie  is  not  tha  the" 

are  too  many  stores,  but  that  there  are  not  enouVh  nr 

Perap    not  „„.,,,„  ,,„^,      ^,,^^  s.v^tem  of  ^ri 

™    ion    -r"  f7"''  "°*  ''^  "'^  elimination  of  the 

n  hon  ether  of  the  w'  .lesale  or  the  retail  trader   bul 

'')  «.e  growth  of  the  latter  into  the  keeper  of  a  depart 


UH 


I'.roVOMK'S 


iiitnt  slori'.  Whili-  prcKliiclion  lin.s  iK-oome  more  and 
more  highly  s|)iTiuliM'<l  and  wliolisalc  liiisines!*  lio.»  * 
some  extent  followed  this  s|)eciuli/.alion,  retail  trade  lias 
l)eei)me  universalized.  The  eonsiimer  desires  to  eeono- 
mize  time,  an.l  therefore  wishes  t(»  <!(>  all  his  shopping  in 
one  shop. 

100.  H'ill  the  midilhman  he  climinntfit'— The  dejiart- 
ment  store  may  not  k-  elieaper,  hut  it  is  more  n.'ivenierit, 
and  where  tinu'  is  vahialile  eonvenienee  is  worth  pay- 
ing for.  There  (I(H's  not  seem,  therefore,  to  he  any  wide 
movement  in  the  direetion  of  eliminating  the  middlemiiri. 
It  has  ken  thought  that  liy  the  use  of  tlie  parcel  post 
and  hy  the  facilitation  of  the  remittance  of  small  sums  of 
money,  the  producer  and  the  consumer  might  he 
hrought  more  closely  together.  Such  measures  are  use- 
ful, hut  they  cannot  I)e  said  to  have  had  any  wide  elfcit 
in  altering  the  estahlished  currents  of  trade.  For  a  time 
it  was  thought  that  the  department  store  wouhl  ahsoili 
all  retail  trade;  hut  in  this  case  also  it  would  appeii'-  that 
there  is  a  law  of  diminishing  return. 

As  the  standard  of  comfort  rises,  people  hecome  more 
fastidious,  and  the  specialist  retail  dealer  who  tliorouglily 
understatids  his  husiness  acts,  as  it  were,  as  inspector  in 
the  interest  of  his  customers,  and  thus  justifies  his  ex- 
istence. When,  however,  as  in  the  case  of  some  of  the 
cities  in  Poland,  cited  in  another  coimeetion,  the  nnin- 
her  of  retail  dealers  hecomcs  excessive,  eompetitiim 
reduces  their  earnings  to  the  margin  of  subsistence; 
or,  as  in  the  case  of  isolated  retail  dealers  in  places  renidtc 
from  urhan  centers,  the  monojxily  which  they  exercise 
may  cause  the  whole  conununity  to  pay  excessive  \>vkvs 
for  what  they  supply. 

The  development  of  distributive  co-operation  in  tlie 
north  of  F.nglnnd  and  in  the  .south  of  .Scotland  has  iii 


GETTING   OiH>m   TO   MaHKKT  ,«, 

«"me  district,  altertW  n„t  merely  the  character  of  retail 

•«>«ity  ,„  the  villn^fs  and  small  towns  l,y  imiH,sin.r  „ 
•l-eck  upon  the  growth  an.l  eve,,  son.eti.ne  2 ^^he 
cmtmuanee  of  the  class  of  the  smaller  mere  „nt         T 

JnZJZr-  ''•'t*T^^'"'^'  ^■"""•tic  conditions  do- 

'ii'.  di»cu».i„n  of  Unemployment.  Part  V-  Chapter  VI. 


ft 


-!»!  HI 


PART  II:    EXCHANGE 

CHAPTER    I 

BARTER    AND    MONEY 

108.  Barter  ccouomij. — AVlien  goods  are  produced 
they  are  utilized  by  tlie  jjroducer,  are  given  away  or  are 
exchanged  for  otlier  goods  or  for  money.  Although  tliu 
use  of  money  dates  back  to  very  early  ages,  all  races 
practiced  exchange  by  barter  in  early  times;  and  from 
time  to  time,  even  after  money  economy  had  been  fully 
established,  they  have  reverted  to  it  when  need  arose. 
Payment  in  kind,  of  taxes  and  of  rents,  has  survived  to 
our  own  day. 

In  the  strict  sense,  barter  is  the  direct  excliange  of 
consumable  goods  for  other  consumable  goods;  in  the 
strict  sense,  exchange  occurs  when  consumable  goods  or 
services  are  rendered  for  money  or  when  money  is  gi\  cm 
for  consumable  goods  or  for  services.  In  the  strict 
sense,  also,  whatever  may  be  the  material  whicli  has  liy 
common  consent  over  a  small  or  over  a  wide  area  ac- 
((uired  the  position  of  money,  the  particular  object, 
whatever  it  may  lie,  is  by  this  mere  fact  removed  from 
the  category  of  consumable  goods. 

This  fact  appears  to  have  l)een  the  essential  characteris- 
tic of  barl)aric  money.  Among  nomads  barter  is  coninioii 
because  the  range  of  their  wants  is  limited  and  l)e(;.ii.se 
anyone  cjf  the  few  commodities  wliich  they  uistd- 
marily  acquire  by  barter  can  almost  always  be  utilizcJ 


BARTER   AND    MONEY 


Russian  money  v;sexc,L!«i','';f'^'  ^'•- ' -*  '"  -''-h 
"i- sheep.    ThisrckThpv^'^      " '  '''"^  ^'""^''"^ed  a  flock 

;«"i  as  they  four c^i^r  T^  rrr/"'  ^^^^^ 

;.;eedtoone.HaintsoH,i„a,„JLf.rsret 

effected;  but  whej  tJe  parS  ti  «'"7  ^  '*■'"  '^""''^ 
»tra.>gers  to  one  another  an,  Je  r  *™'^»^t'™  «>•« 
>vants  of  one  another  tt;  ""fanuhar  with  the 

-lence  of  L"s  and     ^^^^^ 

This  contin.enc^rntl  est  ;;~^^^^^^ 
peditions  whose  members  arp  If       y  scientific  ex- 

'I'tions;  and  wlio  arTtl^r  f   ""^^""''«'-  ^^i"'  t'^ade  con- 
t'cs  in    ravelin!"  5,1  rf"""'  '^"'=°""t"ed  by  difficul- 
10')    pI        1        I     '■'"^'-''■'  P''*''^'^'^'^  ^^itJ'  ease 

'luced  coins  into  tt  crntry'JiTrtf^'r^  "'''  '"'-"- 
'ireulation  of  native  money   ;,f'r         ''^''""^^  "^  "'« 

";•-).  trade  was  ZZj^ "^'tZTT^^fT 
"f  brass  rods  and  wJro  i>„   1     ■       ",  an^  01  the  barter 

■  w  ..H„  is^f  i"  J  rr.:';"-  ■■«■ 

"I*,  for  fur.     A,  '  ,,,        "'  7'P"  '""H  'or  ex- 


?'■     I't; 


106 


ECONOMICS 


in  the  rural  districts,  as  it  still  is  in  some  of  the  remoter 
Scottish  villages,  where  calves  and  pigs  are  customarily 
bartered  for  groceries.  A  barter  economy  can  be  prac- 
ticed extensively  only  by  people  who  live  a  simple  life, 
whose  surplus  of  production  above  their  own  require- 
ments is  slender  and  whose  range  of  wants  is  slendir 
also.  But  barter  economy  does  not  necessarily  involve 
stability  in  relative  values.  When  fish  is  plentiful  amoiifr 
a  community  of  fishermen,  a  quantity  of  fish  which  may 
be  offered  in  exchange  for  a  harpoon  or  for  a  skin-boat 
will  be  large,  irrespective  of  custom ;  when  fish  are  scarce 
and  the  community  is  famishing  for  want  of  it,  weapons 
and  boats  will  alike  be  sacrificed  to  procure  fish  or  otlier 
food.  Thus  fluctuations  in  relative  values  antedate  the 
use  of  money. 

110.  The  origins  of  money. — Like  the  origins  nf 
standards  of  weights  and  measures  the  origins  of  money 
are  lost  in  the  remotest  antiquity.  Nearly  every  useful 
thing  known  to  early  man  in  some  place  or  at  some  time 
has  been  used  as  money. 

The  essential  characteristic  of  the  commoditj'  wliicli 
is  regarded  as  money  is  the  universality  of  the  demand 
for  it  within  the  reach  of  its  recognition  as  money.  It  is 
thus  universally  acceptable  on  certain  terms.  The  pre- 
cise dividing  line  between  barter  exchange  and  money 
exchange  is  sometimes  difficult  to  determine.  It  seems  to 
be  near  the  point  at  which  particular  examples  of  the 
commodity,  whatever  it  may  be,  cease  to  be  utilized  fur 
the  purpose  for  which  they  were  previously  customarily 
utilized,  and  begin  to  be  utilized  exclusively  for  purposes 
of  exchange;  or  when  the  quantities  of  other  commodities 
for  which  the  commodity  in  question  is  exchangeable 
come  to  be  more  or  less  definitely  fixed  by  custom ;  and 
when  the  worth  of  other  commodities  comes  to  be  ex 


BARTER   AND   MONEY  JO7 

I.resse.1  in  terms  of  the  uei^W.t,  Icn^^th  or  „„n,lK.r  of  pieces 
"f  the  commodity  used  as  money.     Thus,  for  e'rp I 

M...pes  and  made  of  various  materials-iron,  copper  sil- 

.ployed  for  the  purposes  for  which  weapons  are  usu- 
ly  made;  but  very  many  „f  them  could  not  Ix.  used  for 

any  such  purposes.  Their  desi^^n  in.licates  the  o  1  of 
-form;  but  the  pieces  themselves  coul.l  onlv  bf ut  - 
.a  for  purposes  of  exchan^.e,  as  indeed  they  were 

throughout  the  Congo  region.  ^ 

So  also  in  China,  the  ancient  Tartar  knife  came  in 

remote  antK,u,ty  to  be  used  as  monev.     Its  form  was 

^Sj'ir"-  ^*  !"r*«  p-t- "It  lost  H;",;:;! 

s   unt  1  ,t  became  a  d.sk  with  a  hole  in  it  and  with  a 

P  aieU,  and  there  remained  only  a  flat  disk  still  with 

e.thcT  a  round  or  a  square  hole  *'' 

The  so-calle,l  hoe-money  of  China  is  regarded  a-  hav 

:'  «  --■lar  history.     Originally  hoes  ap "ar  to^W 

'st ttialh  th?       r^""  *''''"  *■''-'  '^""  ^"^'  ^-^  of 

"^  s,     of  the  hoe  gradually  diminished  until  it  became 
onl    a^ut  an  .nch  and  a  half  long  and  about  an  .^^h 

Chi      for     "°'-™T^  ''-^^  extensively  circulated  in 
wiiiid  tor  many  centuries. 

Ill  the  Malay  Peninsula  where  tin  occurs  in  th      • 

::tXt'„r "°-  -">■  •"- "ii"X' 


108 


ECONOMICS 


side  in  such  a  way  that  the  square  hollow  on  one  si<ie 
showed  as  a  square  projection  on  the  other.  Within 
cc)ini)aratively  recent  times  this  square  tin  currency  was 
extensively  circulated  in  the  Straits  Settlements. 

Fish-hook  money,  canoe  money  and  many  other  forms 
have  l)een  current  in  the  islands  of  the  I'acific.  Wam- 
pum made  from  the  inner  wh(  d  uf  the  busyon  pcrvvr- 
sum,  a  shell  brought  to  the  north  from  the  Gulf  of 
Mexico,  was  extensively  used  by  the  Indians  of  North 
America  until  it  was  replaced  by  European  coins. 
Masses  of  silver  of  various  sizes  and  shapes  have  bewi 
used  in  many  regions  for  currency  purposes.  The 
grvevna,  a  weight  of  silver  varying  in  different  places 
and  at  different  times,  was  the  current  money  of  the 
Dnieper  Valley  from  the  eighth  till  the  eleventh  cen- 
turies, or  perhaps  both  earlier  and  later,  and  the  siiccc 
or  shoe  silver  is  at  present  used  as  the  reserve  cf  the 
Hongkong  and  Shanghai  TJank  and  of  other  banks  iji 
China. 

111.  Gold  and  silver  as  money. — The  position  wliii'h 
for  many  centuries  gold  and  silver  have  held  as  widely 
accepted  money  materials  is  due  partly  to  the  wide  reiMjj- 
nition  of  their  beauty,  to  their  durability  (gold  oxidizes 
very  slowly,  and  although  silver  oxidizes  more  rapidly. 
its  luster  can  readily  be  recovered),  to  their  ready  di\isi- 
bility,  to  their  easily  attainable  uniformity,  to  the  readi- 
ness with  which  they  may  be  distinguished  from  other 
metals,  to  the  difficulty  of  imitating  them,  and  to  their 
density,  which  enables  them  to  receive  and  to  retain 
minute  designs  similar  to  those  which  for  ages  had  he'-ii 
engraved  upon  precious  stones  which  possessed  the  same 
property  of  high  density.  Although  gold  and  silver  are 
neither  of  them  unique  in  respect  to  any  one  of  these 
characters  (some  of  them,  indeed,  they  possess  in  com- 


BARTER   AND   MONEY  ,„j, 

»=■'"  with  many  other  substances),  they  combine  th.-s^ 
characters  in  a  way  that  „„  other  substanLT 

The  nearest  metal  to  fr„U  and  silver  in  wide  apnre- 
c|at.o„  as  money  is  bron.e;  but  bron..  is  readily  3z- 
abie,  and  ,t  ,s  not  found  in  nature;  it  requires  to  be 
manufactured     Zine,  one  of  the  metals  of  which  brone 
■s  composed,  is  not  alwavs  found  in  the  neighboZK^ 
of  copper  the  other  principal  constituent.    Tlf    emaT 
1"^  consftuents  are  variable,  and  their  presence  in  X 
i^ronze  .s  r.o    susceptible  of  determination  excepting  t 
ana  y,s.s.    Althou^.h  fine  bronze  is  a  very  bc-auffu  meta 
11  bronze  ,s  not  fine,  and  this  variability  renders  "less 
*-rable  as  money  material  than  it  wo^dd  be  couW 
n,  orm.ty  be  secured.     Xevertheless,  bronze  1  as  be 
sed  for  centunes  even  for  large  payments  in  spite  oS 
inferior  character  and  of  the  inferior  and  variable  valu^ 
w  .ch  .t  conseciuently  possesses  in  relation  to  gl  d  ^^^J 
^'Her.    In  the  mterior  of  China  the  writer  has  met  Chi 
nese  merchants  whose  servants  were  carrying  lar^e  qSn 
tes  of  bronze  "cash"  on  strings  for  the  por^^ose  of  mak- 
nfe-  purchases.    The  variability  of  the  value  of  iL       u 

t     I,  f  •  u'  *  "'"'*'  "''"'"  °f  '-'^^  t°  the  peasantry  in 

ntenor,  who  are  frequently  called  upon  to  pay  ex" 

'ant  amounts  in  cash  in  payment  of  taxes,  the  val^ 
f  the  cash  bemg  frequently  arbitrarily  depr;cia ted  bv 
th  ;..^ho„t.es  for  the  purpose  of  -.«  tax  payment     ' 

Cxold  and  silver  thus  acquired  in  earlv  «J. 
•Jity  of  acceptance  w-hichV/hr^lE^O::^^^^^ 

0  Ji  Ln    !'        """'""'■'^'^1  "«tions.    Although  the  rec- 


no 


ECONOMICS 


advantage  by  controlling  the  currency  seems  to  liiivt 
suggested  itself  to  rulers  at  a  very  early  period.  This 
opportunity  seems  to  have  presented  itself  through  the 
payment  of  tribute  which  was  frequently  required  to  be 
delivered  in  specific  coins. 

The  history  of  coinage  cannot  be  detailed  here,  but 
the  fact  may  be  noticed  that  coins  cut  from  flat  piccfs 
of  metal  with  the  stamp  of  rulers  made  their  appearance 
long  before  the  teginning  of  the  Christian  era.  'J'lic 
Greeks  applied  tlieir  unrivaled  skill  in  the  plastic  arts  to 
coin  design,  and  in  this  they  Mere  followed  by  tbc 
Romans,  whose  gold  coins  were  in  wide  circulation 
throughout  the  Roman  Empire. 

112.  Monei/  a  standard  of  value.— From  the  above  de- 
scription it  ajjpears  that  gradually,  by  a  social-ps;    lio- 
logical  process  supplemented  by  the  edicts  of  rulers  »\  lio 
required  that  tribute  should  be  paid  in  certain  specified 
currency,  such  currency  or  "current  money"  came  ti)  k 
regarded  as  a  standard  by  which  the  worth  or  value  (jf 
commodities  in  general  might  be  expressed.     Since  all 
commodities  could  be  estimated  in  this  way,  the  value 
of  any  one  of  them  in  relation  to  the  others  could  hn  ex- 
pressed in  terms  of  money,  which  thus  came  to  Ik."  tiie 
common  denominator  of  value.    Since  the  quantities  of 
commodities  which  were  demanded  could  not  always  bear 
the  same  relation  to  the  quantities  offered  in  s-uj)|)iy, 
and  since  the  quantity  of  money  material  which  was  sup- 
plied for  currency  purposes  could  not  always  mc   <r  the  de- 
mand for  it  for  these  purposes,  the  terms  of  cxcliauge 
were  variable  as  the  terms  of  barter  would  have  l)eeii 
variable  had  money  not  been  employed  for  purposes  of 
exchange. 

That  fluctuations  of  value  antedate  money  ecMiioniy 
has  already  been  noticed.    It  is  at  least  a  tenable  hypoth- 


UAUTJiU    AND    AIOM;v  ,,, 

'''V^V*';%",f  "^  '"""'^y'  *"«^«'«^'-  ^i«'  tl.c  ...so  of 
-  .t,  wh.cJ=  follows,  has  had  a  steadying,  influenc   upon 

tlK't  til.  al  erat  on  or  even  M,,.  al.olition  of  the  measure- 
".^'  rod,  wh,ch  s  a  fair  description  of  „.oney,  w3dnot 

^::::i:T'^'"'''r ;'''"''''"''  verbal  deLminat Ins 
anect  the  measure  of  thiii^rs. 

A  survey  of  this  kind  derived  from  arch^olopy  and 

from  1, story  does  not.  however,  explain  what  Z  Z 

.rounds  for  the  various  estimates  of' the  relative  values 

"f  commod,t,es  whieh  are  expressed  i„  money,  and  to 

I  a  discussion  of  this  question  we  shall  now  proceed 


'm »;»» ' 


m] 


CHAPTER   II 


UTILITY    AM)    VALUE 

113.  Value  based  on  utility  or  cxchangcahility. — It  is 
important  to  notice  first  that  the  process  of  valuinfj  is  a 
mentai  process.  It  may  be  affected  by  external  inlln- 
ences,  but  it  takes  place  in  the  mind.  It  is  important  tn 
notice,  second,  that  the  coneei)tion  of  value  always  in- 
volves a  relation  between  the  person  valuing  and  the  dIi- 
ject  valued.  The  relation  may  assume  one  or  the  other 
of  two  forms.  We  may  think  of  the  object  as  being  valu- 
able to  us  because  we  can  put  it  to  a  useful  purpose  or 
because  we  believe  we  can  exchange  it  for  sometliini,' 
which  will  be  equally  or  more  useful  to  us  or  for  its 
equivalent  in  money.  In  the  first  case,  we  consider  tlie 
value  in  use  of  the  object,  and  in  the  second  case,  the 
value  in  exchange  of  it. 

Since  the  value  in  exchange  of  all  commodities 
depends  eventually  upon  their  usefulness  to  some  one, 
although  not  necessarily  to  the  temporary  possessor, 
it  may  be  held  that  the  two  motives  for  valuation  are 
really  identical  from  a  social  point  of  view.  It  is,  how- 
ever, convenient  to  regard  the  two  motives  separately 
and  to  consider  that  goods  are  estimated  in  respect  to 
their  value  in  use  or  their  utility  to  us,  as  well  as  in  re- 
spect to  their  exchangeability.  Indeed,  we  habitually 
contrast  the  advantages  which  we  derive  from  the  pos- 
session of  an  object  with  the  advantages  which  we  may 
hope  to  derive  from  the  possession  of  other  objects  for 
which  we  might  exchange  it  or  which  we  might  pureiiase 
112 


UTILITY   AND    VaLIK  „3 

"ith  the  money  „c  might  oI)taii.  f„r  it      n  e 

.n',".'i'  "1°  o:;'°r'7"  '""^  ■"■  "■"■»'  "^■ 

,1        uiiienvise  ot  tins  anticipated  nlon^nPB      \r    i 

« lo  li,e  nun^ber  „7  St        ;    i      ""  "'  "'"'  "'»">■ 
'mm  them.  '"*  ™  ''l*"  '»  ™l™ 

;«  Tr™:.r  "tor,--!::;';.!'"  rr 

|.nj   times  the  h.gnest  pnce  previously  paid  for 


114 


ECONOMICS 


the  snnic  Imok,  and  was  iiii(ii>ul>tc(lly  greater  than  could 
have  lK.fti  obtained  fcir  the  IkkjIc  in  the  absence  of  two 
c()nii)etitors  wealthy  enough  to  gratify  their  passion  fur 
colleetitig  even  if  tiic  cost  should  be  excessive. 

If  inconvenience  or  pain  is  jiresent  or  imminent,  and 
if  we  are  ottered  the  means  of  alleviation,  our  desire 
for  alleviation  being  thus  urgent,  we  may  be  willing  to 
surrender  a  large  part  of  our  total  resources  rather  than 
dispense  with  the  object  which  will  relieve  us  of  the 
inconvenience  or  pain.  In  the  dry  areas  of  Africa, 
Asia,  America  and  iVustralia,  where  the  region  is  cov- 
ered with  hot  sand,  where  there  is  little  rain,  and  where 
the  subterranean  waters  are  too  deep  to  be  readily  ac- 
cessible, the  possession  of  water  is  a  matter  of  life  niid 
death.  Under  tJ—  pressure  of  extreme  thirst,  a  trav- 
eler may  give  Lp  .'ii  he  has  for  sufficient  water  to  slake 
his  thirst. 

Irrespective  of  the  urgency  or  otherwise  of  the  desire, 
where  the  supj)ly  is  abiuidant  and  access  to  the  supply 
])ossible  with  minimum  exertion,  there  is  no  exchaiij,'i' 
value.  While  boating  on  a  lake  or  river  of  pure  fresh 
water,  thirst  may  readily  be  satisfied  by  a  minimum  of 
exertion. 

llij.  Various  decrees  of  desire. — Between  extremely 
urgent  demand  and  complete  indifference  because  of 
surrounding  abundance  or  because  of  lack  of  desire, 
there  are  numerous  gradations.  At  one  point  on  a  scale 
of  this  kind,  a  thing  might  offer  to  us  a  degree  of  use- 
fulness, practically  infinite,  and  at  another  point  it 
might  offer  itself  in  vain  to  a  satiated  palate. 

l^sefulncss  is  an  affair  of  the  moment  or  of  successive 
moments,  and  is  closely  related  to  quantity  considered 
in  reference  to  our  desires  and  requirements. 

Some  things  may  be  useful  to  us  continuously  or 


UTIUTY    AND    V.VLUE  „3 

IH-riodically,  others  only  f)ccasionnllu  I    .  ■    i- 

A  pair  of  spectacles  r,L  I      7     "      "  '"'''"Pcnsal'ly. 

T  "f  the  utility  of  tl...  „    1      1  '*^''  "'''"y  t"  "s 

"-  be  seV  lo'  „,  j;,;;  ■  ^^  -^  <-  ^"'-  -f  wat.. 
-K  "f  thirst.  Thlu  ilitv  of  "  '"""."  "'"'  '-^  I'"'"''- 
-cliately  after  «:"  1        .eX"  uf  n"'  -"'"'^'^ 

^'-t.  the  utility  of  the  thir,X7  ;;'';;;'  •""»«-•  - 

and  so  on;  the  utility  ^f        i  "">  "*"  Weat. 

i»^"'».  until  thL  i  *^;!,S  IITT';/^'"^^  '""""- 

itma  bVcret;;r'  "^■•^'"";' ''-  '^"■"^  ^'^  -»'«tion. 

'"'^  '"-'ecd  the"„;  e^-  tueTalll  '  """  "  '""«  ^-'• 
"^tl.e  Irish  peasantry  tdlL  ''"•    '^  ^""*-''*"'-y 

'cr>-  earnestly.  Presentl  v  "  ^'"'""'*  '''""  '''^''''•^d  «">'' 
*^-.K>.  a  hofe  in'thTr^?  o"f  ^l^lj'  'f  ^^^W-' 
Piw  .Iropped   aii,I  .n  r,         X  '"'  *'''^"  """ther 

"■e  sold  beele  a  ho  "  .''• '."  '"'"'  '""  »""«  P-'^tests 
™^in  and  oT^lli"!"'"^''  "■'^"*"''"-^  ^"^-"^  "'^ 

k  requirements  or  4^  ''^7  """; '''^"'^»*'' 

-us.forthepu^-l£:rSyt:i 


k^lto 


116 


ECONOMICS 


I 


•or  swimming,  one 


iHJOt 


is  practically  useless. 

Ik;  less  of  an  ciieumhrani-c  tlinn  two;  nItliouKli  even  oiii 

in  such  a  case  would  Ik:  n  discomnKxIity. 

118.  Qualitjf  of  commoditi/  and  character  of  need.  ~ 
While  It  mil y  is  a.  characteristic  of  tliiiif<s  attributed  tn 
tlicm  by  the  mind  which  looks  u])on  thoni  in  relation  tn 
itself,  to  the  physical  and  chemical  pro|H.'rtics  of  bodks 
is  due  the  circiunstance  that  they  can  satisfy  our  di- 
sires  and  can  by  this  means  be  useful  to  us.  If  wt 
desire  a  life-belt,  we  cIkmisc  one  made  of  cork  for  the 
reason  that  the  specific  gravity  "f  cork  is  less  than  that 
of  water;  if  we  desire  a  furnace  which  must  sustain  a 
high  temperature  we  choose  fire-brick  which  has  lutn 
subjected  to  a  test  and  has  demonstrated  its  heat  re- 
sisting properties.  For  certain  chemical  operations,  \n 
use  crucibles  of  porcelain,  platinum,  graphite,  accord- 
ing to  the  properties  of  the  substances  which  we  desire 
to  reduce. 

The  properties  of  bmlies  are  constant  under  continii 
«)usly  like  conditions,  but  because  of  the  variation  "f 
our  needs  they  are  not  continuously  useful  to  us.  \Ve 
warm  ourselves  at  a  hot  stove;  we  become  warm  and 
may  soon  become  overheated.  We  must  leave  the  stove. 
We  desire  coolness.  The  first  few  minutes  in  an  ice- 
house are  agreeable;  but  our  desire  does  not  go  to  tiie 
freezing  point. 

Some  commodities  yield  their'  utilities  in  one  dose  as 
it  were;  others  yield  their  utilities  in  numerous  and  per- 
haps in  various  doses.  An  orange  which  may  have  lieen 
cultivated  with  infinite  pains  in  California,  Florida  nrj 
in  Spain  yields  its  utility  in  a  few  moments;  and  its  si;iii 
becomes  an  encumbrance — a  disutility.  A  chair  nr 
table  may  be  utilized  for  hundreds  of  years  for  tlie  pur- 
pose for  which  it  was  designed  and  made,  and  then  tli 


UTILITY    AND   VALUE 


wood  of  which  it 
Miiiii  'ous  other 
NiiKlit  be  hiiriied 


117 


was  mnstnictcd 
I»ir]>o.s( 


nii^lit  he  iitilize<l  fo 


■ssively  iititil  finally  it 


as  a  (liscoiiiiiKKlitv. 
•S..n.e  eo,n„uHlitie.s  may  he  ntili^e.!  for  one  or  other 
"'  xfveral  ,,„r,,oses  indifferentlv.    A  „ie(v.    f  "• 

r^^iirr ''""'"  ^'^"^^''''---^^^^^ 
XTL^'r;':'.;::::r:r,:^;'" 

-y  con,e  a  railway  rli  '  a  ,  a  r  o       "•"""■"  """:'  ""''"'^ 
>.'",n's  knife.  *  '  ""  "*  """"'""  "'"'  «  ""r- 

-  (the  utilities  of  the  commodities  t'^^;^    f.-l'^t'- 

fvil"  ,"  ■    ■"'■  "r™  r  °^ """  "">»"' 


p 


118 


ECONOMICS 


electrical  power  for  our  own  use  instead  of  purchasing 
a  supply  from  a  public  or  private  source.  Even  if  we 
possessed  control  of  water  power  it  might  or  might  not 
be  more  advantageous  to  utilize  that  power  or  to  pur- 
chase electricity  elsewhere. 

While  air  and  water  may  be  obtained  freely,  we  must 
take  them  both  in  situ,  that  is,  in  the  place  in  which  na- 
ture has  put  them,  and  we  nnist  be  content  with  the 
quality  which  nature  has  provided.  Transportation  of  [ 
water  is  costly  as  also  are  both  ventilation  and  change 
of  air.  [ 

120.  Exchange  value.— In  the  second  sense  in  which 
the  word  value  is  customarily  used  by  economists,  we| 
value  a  thing  because  we  believe  that  we  can,  if  we  wish,  i 
exchange  it  for  something  else  or  for  money.  There! 
are  many  cases  of,  so  to  say,  mixed  value  or  va'.ue  in- 
volving mixed  motives.  Thus  we  may  possess  a  picture  I 
to  which  we  attach  a  high  value,  first,  because  of  its  util-l 
ity  as  a  source  of  a'sthetic  stimulus,  and  second,  because! 
of  its  salability  for  a  high  price.  I 

To  the  merchant,  the  motive  which  induces  the  ts-| 
timate  of  value  in  purchasing  and  in  holding  a  coiii-i 
modity  is.  as  a  rule,  quite  simple.  He  is  disposed  to  I 
pay  a  certain  price  for  it  because  he  believes  he  can  I 
sell  it  at  a  higher  price.  In  some  instances  prices  are! 
normally  greater  at  relatively  remote  periods;  in  otlurj 
instances  they  are  smaller.  Thus  perishable  goods  likel 
milk  must  be  sold  at  once;  some  other  goods  gain  liyl 
being  kept.  Wine  matures  in  the  cellar,  and  is  sonie-| 
times  kept  there  for  years,  the  price  eventually  obtaincjl 
being  in  general  much  higher  than  the  price  of  the  inil 
mature  wine.  I 

Utility  is  an  individual  criterion ;  exchange  vahie  is  i\ 
social  criterion,  because  although  the  owner  of  an  ex-f 


UTILITY    AND    HLUE  ,„ 

are  Dased  upon  their  personal  needs  taken  in  relation  to 
1"  "Wain.    m.  nr„Ti,l  „^       ';  T"""'  "■'■''  ^^'^ 

122.  -y«;,p/2,.-Supply  thus  depends,  not  who  Iv  but 


120 


ECONOMICS 


in  consequence  of  the  abundance  of  the  harvest,  the  local 
stores  will  increase  their  stocks,  the  distant  wholesalers 
from  whom  they  'customarily  order  their  goods  will 
place  large  orders  with  the  manufacturers,  and  the  man- 
ufacturers will  work  overtime  or  will  install  additional 
machinery,  or  even  additional  buildings,  in  order  to  meet 
the  demand.  Their  power  to  do  these  things  will,  how- 
ever, depend  upon  their  ability  to  increase  the  product 
of  their  factories  with  their  existing  means  of  produc- 
tion or  to  procure  additional  means  of  production  by 
purchase  from  their  own  resources  or  on  credit. 

The  power  of  a  manufacturer  to  utilize  his  existing 
or  increased  means  of  production  will  also  depend  upon 
the  contracts  lie  is  able  to  make  with  his  workmen. 
Since  every  manufacturer  in  the  same  branch  of  indus- 
try may  be  supposed  to  be  doing  the  same  thing  under 
the  same  conditions,  it  may  or  may  not  be  possible  for 
any  of  them  to  increase  the  prices  of  their  goods,  although 
the  mere  increase  in  the  product  will  give  them  an  in- 
creased total  profit  provided  the  competition  is  not  so 
keen  as  to  result  in  <liminished  prices.'  Supply  may  be 
restricted  even  though  the  demand  increases  and  the 
prices  offered  by  those  who  desire  the  goods  increase 
also,  because  the  supply  of  the  raw  material  may  be 
restricted. 

123.  The  law  of  substitution. — What  is  known  as  the 
law  of  substitution  is  to  the  effect  that  when  the  price 
of  a  commodity  advances  to  a  certain  point,  another 
commodity  may  be  substituted  for  it,  provided  the  price 
of  the  second  commodity  is  low  enough  to  render  its 
use  more  economical  than  that  of  the  first  commodity. 
Thus,  for  some  of  the  purposes  for  which  silk  is  used, 

*  In  the  early  stages  of  increase  of  demand,  prices  tend  to  rise  and  to  continue 
to  rise,  until  the  supply  overtakes  the  demand. 


UTILITY   AND   VALUE 


181 


fine  linen  is  nearly  if  not  quite  equally  well  adapted. 
If  the  price  of  silk  rises,  fine  linen  will  be  used  for  some 
of  the  purposes  for  which  silk  is  customarily  used.  Sim- 
ilarly for  some  of  the  purposes  for  which  linen  is  used 
«.tton  will  serve  if  not  as  well,  nearly  as  well,  and  if 
the  price  of  linen  rises  cotton  will  be  used.  If  the  prices 
of  cotton  advances,  jute  may  be  used  for  some  of  the 
uses  of  cotton. 

There  are  no  doubt  some  substances  for  which  no 
substitute  exists  for  any  or  many  of  its  uses.  Su'  sti- 
tiites  for  mercury  are  employed  for  some  of  its  uses; 
l)ut  there  are  many  laboratory  experiments  for  whic 
in  the  present  state  of  knowledge,  mercury  is  indis- 
pensable.   The  same  is  true  of  platinum. 

Substitutes  for  some  of  the  uses  of  india-rubber  have 
been  found,  but  no  other  substance  possesses  all  of  the 
properties  of  rubber  and  for  some  of  those  uses  there  is 
at  present  no  subsitute.  The  enormously  increased  use 
of  india-rubber  for  the  purpose  of  making  the  tires  of 
automobiles  led  to  a  demand  for  the  raw  material  so 
greatly  m  excess  of  the  supply  that  the  price  of  rubber 
advanced  rapidly.  New  sources  of  supply  were  sought 
and  found,  but  the  price  remained  high  because  the  rub- 
ber plantations  which  are  altogether  in  tropical  coun- 
tries subject  to  cyclonic  storms,  are  occasionally  de- 
coyed, and  because  the  organization  of  tropical  labor 
|s  very  difficult.  Thus,  although  the  supply  has  been 
largely  increased  in  response  to  the  demand,  there  is  no 
Keess. 


*    ' 


CHAPTER    III 


MARKETS 


124.  Origin  of  local  markets.— The  relation  be! 
tween  demand  and  supply  is  discovered  in  the  market. 
This  expression  is  customarily  used  in  two  senses — one 
derived  from  the  other.  The  first  sense  is  special  and  the  | 
second  general. 

Historically,  a  market  is  a  meeting  of  persons  fori 
pi:iposes  of  trade.     Such  markets  were  held  at  some 
pl've  which  was  convenient  for  a  concourse  of  people 
to  assemble.    Among  nomadic  people,  markets  are  held 
on  some  neutral  ground,  more  or  less  equally  accessible 
to  the  tribes  which  attend  it  or  send  their  representa] 
tives.    Markets  were  thus  frequently  held  at  the  eon 
fluence  of  two  rivers  or  at  some  strategic  point  on  a 
river  bank  which  might  readily  be  fortified  in  case  of 
attacks  by   hostile  tribes.     When   especially   su.'ablel 
places  were  found,  they  were  sometimes  occupied  in  I 
successive  years  at  certain  p.-riods,  and  eventually  some 
of  these  places  became  permanently  settled.    The  asso- 
ciation of  markets   with   graveyards,   and  later  with  I 
churches,  is  very  frequent  in  Eastern  Europe  from  the  I 
earliest  times. 

125.  The  market  at  Nijni  Novgorod.— The  most  im-l 
portant  survival  of  an  early,  although  perhaps  not  of  a  I 
very  early,  market  on  a  particular  site,  is  the  market  I 
of  Nijni  Novgorod,  at  the  confluence  of  the  rivers! 
Volga  and  Oka  in  Russia.  This  great  market  which  isl 
attended  by  traders  from  Central  and  Northern  Asia! 
122 


MARKETS  ,23 

and  by  traders  fron:  Europe  and  America  is  held 
a-mually  ,„  August.  The  permanent  city  which  is  quite 
MMall  .s  situated  on  the  high  right  bank  of  the  Yo\^a 
a,.d  on  the  r,ght  bank  of  the  Oka.  The  city  where  the 
market  ,s  held  ,s  on  the  right  bank  of  the  Volga  and 
on  the  left  bank  of  the  Oka.  It  is  built  of  perman^ 
houses,  which  are,  however,  occupied  only  during  the 
jjcriod  of  the  market.  ^  ^ 

Although  nearly  every  commodity  finds  a  place  there 
.ron  cottons,  furs  tea  and  ikors  (images  which  are  to 
be  seen  m  every  Russian  house,  shop  and  office)  are 
he  most  conspicuous  commodities  offered  for  sale.  The 
J.r  trade  of  the  world  has  been  largely  concentrated 
there.  J  ur  coa  s  which  may  be  seen  on  Broadway.  New 
Wk  have  probably  been  purchased  in  the  long  street 
of  the  fur-sellers  at  Nijni  Novgorod 

126.  Protecting  market  routeo.-Vermanent  settle- 
ment m  or  near  a  market  place  and  the  more  or  less 
«.ntmuous  resort  of  people  there,  even  though  the 
marke  m.ght  be  held  only  periodically,  necessitafed  the 
protection  of  the  routes  which  led  to  and  from  the  mar! 

tC\JJ  u  '""*''  """^  ^''P"'^'^  *"  h°*tile  attack, 
t  "!r  7^"  ™''*°'"-''y  f"»"d  their  way  to  the  mar- 
ket mght  f^ar  to  traverse  the  route  or  might  be  cut 
off  if  they  attempted  to  do  so. 

127.  Some  tirll-known  market  plaees.~As  communi- 
ations  came  to  be  more  effectively  organized  and  as  the 
ra<l,ng  cit.es  succeeded  in  offering  improved  facilities 
for  trade  special  markets  came  to  be  localized  and  cer- 
Jw,  localities  became  places  of  resort  for  merchants, 
lluis  the  slave  markets  of  Bagdad  and  of  Constanti- 
nople were  of  importance  in  early  ages,  as  the  Fur  Pair 

?     ^  ?r.   ^u""  "^  ^"'P^'^  "^^  °f  importance  now. 
ll.e  market  for  hiring  farm  laborers,  known  as  the  Fal- 


m 


iil 


124 


ECONOMICS 


kirk  Tryst,  and  the  market  in  Glasgow  for  hiring  domes- 
tic servants,  known  as  the  Buchts,  are  examples  of  sur- 
vivals of  ancient  i)eri(xlical  markets  in  Scotland.  Ex- 
amples of  continuous  markets  are  to  be  found  in  thv 
Bazaars  of  Eastern  cities  and  in  the  markets  of  the  Bel- 
gian coast  towns,  and  an  example  of  a  weekly  market 
is  to  be  found  in  the  Sunday  morning  market  for  old 
clothes  held  in  the  square  in  front  of  the  Hotel  de  Villi 
at  Brussels. 

The  commercial  law  of  every  country  and  much  of 
the  municipal  law  have  been  developed  from  the  regu- 
lations of  the  market.  The  tolls  charged  for  the  use  of 
the  market  were  almost  the  beginning  of  municipal  tax- 
ation. 

128.  Operation  in  a  typical  local  market. — In  mod- 
ern times  the  small  local  market  still  plays  a  large  rule 
in  urban  and  semi-urban  life  both  in  Europe  and  in 
America.  The  reader  is  recommended  to  attend  a 
local  market  and  to  observe  the  transactions  closely.  ]?y 
doing  so  he  will  have  brought  vividly  before  him  on  a 
small  scale  precisely  the  same  problems  in  value  which 
present  themselves  in  the  world-wide  markets  for  tlie 
great  staples. 

The  proceedings  of  a  typical  market  in  a  small  Ger- 
man town  may  be  briefly  described.  In  the  early  morn- 
ing the  farmers'  carts  begin  to  come  into  the  market 
place.  Some  of  them  have  come  from  a  great  distance 
and  have  started  probably  at  two  or  three  o'clock  in 
the  morning.  The  carts  bring  hay,  grain,  vegetables 
and  fruit  according  to  the  season,  and  always  poultry, 
eggs  and  butter.  They  generally  bring  also  some  jjrod- 
ucts  of  the  domestic  industry  of  the  farmer's  family- 
lace  and  the  like. 

Sometimes  the  farmer  transacts  his  business  himself. 


MAKKETS 


135 


Frequently  his  wife  or  daughter  acts  as  saleswoman. 
C'lisiomers  arrive  early  and  look  about.  Habit  plays  a 
large  part  in  the  German  provinces,  and  customary 
I)rices  are  still  very  prevalent ;  but  even  customary  prices 
have  their  customary  variations.  Different  prices  are 
expected  at  different  hours  in  the  market,  and  strangers 
are  usually  called  upon  to  pay  more  than  friends. 

Prices  which  had  been  paid  at  the  height  of  the  mar- 
ket on  the  previous  day  are  asked  at  the  beginning  of 
the  market.  Few  transactions  take  place.  Jlore  carts 
come  in  and  more  customers  arrive.  It  soon  appears 
either  that  tliere  is  a  good  supply  of  vegetaWes,  or  that 
the  supply  for  the  day  is  not  going  to  do  any  more,  or 
even  perhaps  may  do  less  than  will  satisfy  the  demand 
at  the  price  of  the  previous  day.  Intending  purchasers 
hecome  less  keen  if  they  find  that  the  supply  is  large, 
and  more  keen  if  they  find  that  in  relation  to  their  es- 
timate of  the  demand  it  is  relatively  small. 

By  eight  o'clock  in  the  morning  the  most  fastidious 
and  the  largest  buyers  have  probably  after  discussion  and 
much  higgling  settled  upon  the  prices  and  made  their 
purchases.  Then  those  farmers  who  have  sold  out  their 
produce  may  leave  at  once;  those  who  have  not  done  so 
endeavor  to  get  the  prices  which  have  been  fixed  in  pre- 
vious transactions.  The  poorer  customers  wait  until 
the  end  of  the  market  to  pick  up  at  low  prices  the  re- 
mainder of  the  vegetables  and/ other  produce,  for  as  a 
rule  the  farmers  will  sell  at  a  low  price  rather  than 
carry  the  produce  back  to  their  farms.  By  ten  o'clock 
the  market  is  practically  empty  save  perhaps  for  some 
booths  which  are  erected  by  local  people  for  the  sale 
of  miscellaneous  goods  of  town  manufacture  to  the 
farmers'  wives. 
The  range  of  fluctuation  in  a  restricted  market  of  this 


1S6 


ECONOMICS 


kind  is  not  usually  great ;  the  variations  result  from  tlie 
relation  of  supply  and  demand  with  due  consideration 
to  differences  in  (juality— for  the  village  folk  are  shrewd 
huyers — and  from  slight  preference  to  favored  regular 
customers  and  to  large  huyers. 

\A'hat  goes  on  in  the  small  local  market,  with  its  well- 
informed  and  shrewd  buyers  and  sellers,  is  very  siniilai 
to  the  proceedings  in  larger  markets,  in  spite  of  the  in- 
significance of  the  supply  and  the  demand  in  the  former 
case;  yet  in  the  latter  the  calculation  of  prohabilitiis 
upon  which  bids  are  made  and  entertained  are  much 
more  comjjlicated  tecause  nmch  wider  influences  must 
be  taken  into  account. 

In  the  Corn  Exchange  at  Liverpool  there  is  a  daily 
market  for  wheat  as  there  is  also  in  the  wheat  pit  at 
the  Board  of  Trade  in  Chicago.  In  the  Royal  Ex- 
change at  Glasgow  there  is  a  daily  market  for  pig-iron 
known  as  the  Iron  Ring.  There  are  numerous  otlicr 
examples  of  the  localization  of  the  market  for  staple 
products. 

129.  Market  in  the  general  sense. — It  has  been  ob- 
served that  the  cardinal  characteristic  of  a  market  is 
that  it  is  a  concourse  of  people  assembled  for  the  pur- 
pose of  engaging  in  trade.  Various  historical  exami)les 
of  such  concourses  have  been  given  above.  There  is, 
however,  another  sense  in  which  the  word  market  is  used 
by  economists.  This  sense  has  been  derived  from  tlic 
historical  market.  Actual  assembling  of  traders  in  a 
concourse  is  no  longer  necessary  to  constitute  a  mar- 
ket in  this  new  sense,  although  such  assemblies  take 
place  daily.  The  ocean  telegraph  cable  has  made  "the 
world  one  city,"  and  has  given  the  world  one  market. 

The  word  "market"  has  thus  come  to  be  generalized. 
It  now  means  the  invisible  concourse  all  over  the  world 


MARKETS 


I«7 


or  in  the  important  centers  where  commerce  is  con- 
iliicted  on  a  large  scale,  of  people  who  are  engaged  in 
tradmg  in  particular  commodities  at  a  particular  mo- 
ment. Thus  the  market  for  wheat  is,  as  it  were,  attended 
hy  wheat  buyers  and  sellers  throughout  the  world— in 
(ireat  Britain,  France,  Germany  and  other  great  con- 
suming countries,  as  well  as  in  Russia,  Roumania. 
Egypt,  India,  Argentina,  Canada  and  the  United 
States,  the  principal  producing  countries. 

Whatever  influences  the  demand  on  the  one  hand  and 
the  supply  on  the  other,  in  respect  to  wheat  in  all  of 
these  countries,  influences  the  wheat  market,  which  is 
indeed  the  generalized  expression  for  the  total  of  wheat 
demand  and  supply,  present  and  prospective,  through- 
out that  part  of  the  world  which  is  within  the  sphere 
of  international  exchange. 

In  a  strict  sense  the  market  means  the  combined  state 
of  demand  and  supply  in  a  particular  commodity  at  a 
given  moment.  Transactions  are  always  taking  place 
in  the  great  staples-supply  is  always  being  diminished 
by  the  absorption  of  goods  in  consumption,  and  is 
always  being  increased  by  production.  So,  also,  de- 
mand IS  satisfied  by  supplies  and  revived  by  recurring 
wants.  The  market  for  goods  is  like  a  reservoir 
which  IS  being  drawn  from  continuously,  and  which  is 
being  contmuously  replenished. 

130.  How  to  approach  study  of  "the  market."~A 
concrete  study  of  market  practices  has  been  suggested. 
but  without  some  guidancer  such  a  study  is  very  difficult 
because  for  most  people  the  practice  of  the  market  must 
be  looked  at  from  an  unaccustomed  angle. 

In  scientific  studies  a  common  plan  is  to  formulate 
provisionally,  certain  assumptions  and  to  build  upon 
these  assumptions.    If  the  reasoning  is  sound  the  conclu- 


1S8 


ECONOMICS 


sions  will  be  sound  for  all  cases  in  which  the  asccrtniiud 
facts  correspond  with  the  assumptions.  If  the  astir- 
tained  facts  do  not  correspond  with  them,  and  if  the  di- 
vergence between  them  can  be  ascertained,  the  nccis- 
sary  corrections  may  be  made  upon  the  assumptions  iinii 
therefore  also  uix)n  the  conclusions. 

Thus,  for  example,  the  compass  is  adjusted  to  indi- 
cate the  North.  Those  who  are  skilled  in  such  matttrs 
know  that  it  does  not  anywhere  do  so  precisely,  and  that 
it  is  necessary  to  make  a  correction  for  the  local  nuiK- 
netic  variation.  The  compass  is,  however,  extreimly 
useful  because,  given  a  knowledge  of  the  variation,  tlie 
exact  position  can  easily  be  ascertained  by  means  of  it. 

In  economic  reasoning  it  is  assumed  that  everyone 
not  only  knows  where  his  economic  interest  lies,  but  that 
everyone  is  engaged  in  the  constant  pursuit  of  his  own 
interest.  This  assumption  may  not  be  well  founikii, 
but  if  we  know  the  amount  of  self-regardlessness  in  an 
individual  case,  a  very  hard  matter  te  ascertain,  we  can 
then  find  out  what  variation  from  the  normal  course  of 
action  to  allow  for.  Proceeding  upon  the  assum])ti()n 
that  the  pursuit  of  self-interest  is  the  dominant  motive, 
we  may  ask  what  are  the  factors  which  determine  the 
relative  values  of  commodities  as  expressed  in  market 
prices. 

131.  Supply  and  demand  illustrated. — Clearly,  we 
have  to  deal  with  ^wo  sets  of  people  in  any  market- 
with  those  who  desire  to  buy  and  with  those  who  desire 
to  sell.  Among  the  former  set  there  are  some  who  are 
urgently  desirous  of  buying.  The  commodity  whicii 
they  want  may  be  quite  necessary  to  them,  and  their  re- 
sources being  ample  they  are  prepared  to  pay  any  price 
which  is  demanded.  In  the  same  market  there  arc  also 
among  the  latter  set  some  who  are  equally  urgent  sellers 


RIARKKTS 


1«9 


-  ticy  are  prepare,!  t..  sell  for  any  price  wl.ieh  may  be 
!    nnr       T      f  ."•"'  """y  ^  '■"""«'  I'e"o..s  who 

TrTuT/  "":'  '"'"'^^"'  *'"^  ^■^"•'^""■••''  '■"  each  set 
there  will  be  found  ma.iy  who  occupy  intermediate  p„- 
s.l."ns.  It  IS  clear  also  that  in  a  market  where  there  is 
a  |.re,]om.na„ce  of  the  demand  side,  that  is  to  say.  where 
there  are  more  goods  of  a  particular  character  de- 
manded than  the  visible  supply  can  provide.  tJ>e  most 
urgent  buyers  will  exert  a  strong  influence  toward  S 
ng  the  pnee.  The  price  under  such  circumstances  will 
tend  o  approximate  toward  that  ,.rice  which  can  !« 
paKl  by  the  most  urgent  b.iyers.  These  buyers  are 
«)n,et,mes  known  as  marfriru,l  buyers,  and  the  process 
just^descnbed  .s  the  operation  of  the  law  of  marffi,uU 

On  the  other  hand,  in  a  market  where  the  supply  is 
.n  excess  of  the  deman,!,  the  price  will  tend  to  approxi! 
mate  to  the  pnee  which  the  most  urgent  sellers  will 
ccept.    In  other  words,  we  ha,e  an  exun,,,Ie  of  the  op- 

the  law  of  marginal  utility. 

pon  the  desire  to  possess  the  commodity  and  to  utilize 
•t,  and  m  the  case  of  the  sellers  the  urgency  will  de- 
pen<  upon  the  desire  to  dispose  of  a  surplus"  utility  of 

ne  kind  m  order  to  acquire  a  utility  of  some  other  kind 
lor  the  purpose  of  satisfying  an  immediate  want.  Thus 
a  farmer  having  a  surj,lus  of  hay,  and  having  not  the 
therewithal  to  provide  food  for  his  family,  must  sell  the 

a>  m  order  to  provide  food,  while  another  farmer  hav- 
"iR  food  for  his  family,  but  having  no  fodder  for  his 
animals,  must  buy  hay  to  feed  them. 

132.  How  prices  arc  established—The  market  price 


ISO 


KfONOMKS 


point  on  a  scale  of  prices  at  which  the  most  urgent  ((ir 
niar({inal)  seller  meets  the  most  indifferent  (or  niiir- 
ffinal)  buyer  or,  conversely,  where  the  most  urgent 
buyer  meets  the  most  indifferent  seller,  according  to  tiie 
relations  of  supply  and  demand  in  the  market. 

But  both  demand  and  supply  are  elastic.  If  thcio  ii 
an  inadequate  supply  to  meet  an  urgent  demand,  there 
will  be  a  tendency  for  further  supplies  to  be  forthcom- 
ing, and  if  there  is  an  inade()uate  demand  to  respond  tn 
urgent  desire  to  sell,  furtlier  demand  will  tend  also  to 
be  forthcoming.  The  general  tendency  of  the  marktt 
will  be  to  draw  out  demand  and  supply  alike  in  such 
a  way  as  to  pro<luce  an  equilibritmi.  AVhcre  this  proi'ess 
cannot  take  place,  because  supjily  cannot  be  ol)tainc(l  (as 
in  the  ease  of  india-rubber  previously  mentioned),  tlit 
phenomenon  of  rising  prices  will  appear;  or  where  dt- 
niand  does  not  respond  (as  in  the  case  of  over-produc- 
tion), the  phenomenon  of  falling  prices  will  appear. 

13.3.  Ejctcrnal  influences  upon  market. — liehind  all 
subjective  estimates  of  value  there  are  the  external  con- 
ditions which  are  regarded  in  relation  to  the  respective 
individual  desires.  The  characteristics  of  these  external 
conditions  are  very  numerous. 

With  the  universalization  of  the  market  through  the 
improvement  of  means  of  communicjiting  the  state  (if 
the  market  at  different  places  almost  instantaneously, 
certain  market  centers  exert  an  important  influence  upon 
the  general  market  under  certain  conditions.  Owiiis  to 
the  difference  of  time  between  the  two  great  conimer 
cial  continents — Europe  and  America — and  owing  to 
the  fact  that  in  the  most  important  staples  which  form 
the  bulk  of  international  trade — grain  and  cotton- 
Europe  represents  demand  and  America  represents  sup- 
ply, under  all  conditions  in  which  demand  is  more  in- 


MARKETS 


ISI 


rtucntial  than  8upply,  tlie  Kuropcon  markets  arc  m..rc 

mrtuontml  .,.  (ktorn.ining  the  price  than  tl*  Anieriean. 

)..  the  other  han.J.  when  it  hap,M;„s.  as  it  .Kcasionally 

as  happened,  that  supply  is  deficient,  the  .lo.ninant  in- 

tlutnce  IS  on  the  Western  side  of  tlw  Atlantic 

The  difference  of  time  is  imp..'.,nt  because  European 
business  ,s  a  most  ciosiuR  for  the  day  In^fore  business 
m  the  rmted  States  begins.  The  course  of  trading  in 
M.ncmff  Lane  m.  Lond,.n,  and  in  the  Corn  Exchange 
at  ..verpooi.  thus  influences  inevitably  the  course  of 
tradmg  in  the  Chicago  Wheat  Pit. 


CHAPTER   IV 


PRICES 


184.  A   "fair  exchange. — The  medieval   idea   of  a  I 
"just  price"  did  not  stand  alone;  it  was  one  of  a  group 
of  ideas.    Throughout  the  middle  ages  and  in  modern  | 
times  in  certain  parts  of  the  world  (notably  in  Asia) 
custom  exercised  an  immense  force  and  the  custoniarv 
price  became  the  fair  one.    It  was  not  always  the  same 
price,  although  it  was  customary.    The  "fair  price"  to 
a  stranger  was  not  a  "fair  price"  to  a  friend;  and  a  "fair  | 
price"  in  the  morning  was  not  necessarily  a  "fair  price 
when  the  market  was  about  to  close.    Even  where  the  I 
"fair  price"  was  a  pervasive  idea,  bargaining  was  not 
unknown. 

The  notion  that  from  the  social  point  of  view  it  dnes  I 
not  matter  whether  a  bargain  is  advantageous  or  not  to  I 
one  or  other  of  the  parties  to  it  cannot  be  accepted  with- 
out qualification.  So  far  as  the  bargain  in  the  strict  I 
sense  is  concerned,  it  cannot  matter  because  the  bargain  I 
is  not  of  itself  a  productive  operation.  The  bargain! 
concerns  itself  with  the  value  of  a  product,  but  does  not  I 
of  itself  either  increase  or  diminish  production.  Yet  the  | 
result  of  a  bargain  or  a  series  of  bargains  may  be  an  I 
increase  or  a  diminution  of  production. 

If,  for  example,  a  craftsman  excellently  skilled  in  I 
his  craft  is  unable  to  make  a  living  from  the  sale  of  his  I 
wares  because  he  is  unable  to  make  such  bargains  in  the  I 
sale  of  them  as  will  enable  him  to  realize  their  full  vahieT 
and  if  in  consequence  of  this  circumstance  he  abandons| 
182 


PRICES  ,33 

the  making  of  the  wares  in  question,  the  "social  divi- 
dend   may  thereby  be  diminished. 

So  also,  if  in  a  bargain  about  wages,  a  workman  ob- 
ta>ns  for  work  m  his  proper  craft  less  than  a  living 
wage  he  may  decide  to  absndon  the  craft  in  the  prac- 
tice of  which  he  is  skilled  and  to  devote  himself  to  the 
practice  of  some  other  craft  in  which  he  is  less  skilled- 
and  the  social  dividend  may  suffer  loss. 

Or.  in  a  larger  case,  if  a  group  of  wage  earners  are 
so  remorselessly  exploited  by  their  employers  that  they 
receive  wages  of  a  less  amount  than  will  suffice  to  main- 
am  them  at  their  normal  level  of  efficiency,  even  though 
they  render  services  to  their  employer  of  much  more 
va  ue  than  their  wages  r-present,  the  "social  dividend" 
Hill  suffer  from  their  inferior  efficiency. 

Thus  in  wage  bargains  especially  and  in  some  other 
eases  of  bargain  making  the  "fairness"  of  the  bargain 
IS  not  a  matter  of  social  indifference.  Where,  however 
both  parties  to  a  bargain  are  equally  productive,  and 
where  their  consumption  is  of  a  like  character,  it  is  mat- 
ter of  indifference  in  a  social,  although  not  in  a  private 

a  blrcr^n  ""^  '"'  ^^  ''^''"  '^"''^^^  ""  advantage  in 

The  case  is  really  the  same  as  where  one  of  two  com- 
pletely idle  and  dissolute  gamblers  wins  from  the  other 
a  bet.    In  either  case,  the  proceeds  of  the  bet  will  be 

fr"51'",!^'T'"*'  '"''"^'  """^  '"  ""*''«»•  «="''«  will  the 
fact  of  the  bet  being  lost  or  won  affect  production  in 

Where,  however,  a  person  who,  under  normal  circum- 
stances, expends  his  resources  productively,  loses  a  bet 
or  makes  a  bad  bargain  in  a  transaction  with  a  non- 
producer,  the  national  dividend  must  suffer,  as  it  might 


134 


KCONOMICS 


gain  if  the  same  person  won  a  bet  or  made  a  good  bar- 
gain under  the  same  conditions. 

133.  Customary  prices. — While  it  is  true  that  cus- 
tomary prices  are  very  widely  spread,  and  that  the  fam- 
ily and  the  caste  exercise  a  powerful  influence  in  the 
determination  of  wages  and  prices  alike  (especially  in 
India,  although  not  exclusively  there),  it  is  also  true 
that  very  considerable  variations  in  relative  values  occur 
even  under  conditions  where  customary  prices  are  prev- 
alent. Such  variations  are  exhibited,  for  example,  in 
the  fluctuations  of  the  value  in  Chinese  "cash"  of  tlie 
Mexican  dollar.  These  fluctuations  are  exceedingly  wide 
and  they  seriously  affect  the  economic  condition  of  a 
community  because,  though  eventually  all  prices  follow 
them,  they  do  not  do  so  simultaneously.  The  fluctua- 
tions in  the  prices  of  land,  for  instance,  usually  lag  be- 
hind those  in  the  pric      of  other  commodities. 

Relative  values  indeed  are  much  more  variable  in 
primitive  communities  than  in  those  upon  a  higher  level 
of  culture.  The  practice  of  bargaining  is  more  continu- 
ous. While  there  are  usually  several  prices  in  the  same 
local  market  for  the  same  thing — one  for  the  stranger, 
one  for  the  fellow  countryman  and  one  for  the  friciui, 
all  of  these  are  more  or  less  individual.  Some  weight 
must  also  be  attached  to  the  period  of  the  day  at  wliich 
the  bargain  is  made.  In  China  it  is  considered  very  un- 
lucky to  lose  the  first  prospective  customer,  through 
want  of  tact  in  bargaining,  and  a  relatively  low  price 
may  thus  be  accepted  from  an  early  buyer. 

136.  Money  as  the  standard  of  value. — The  origins 
of  money  have  already  been  discussed;  it  is  now  neces- 
sary to  observe  tlie  role  played  by  money  as  the  standard 
or  measure  of  the  value  of  commodities.  The  universal- 
ity of  the  demand  for  gold  and  silver  has  placed  tlicni, 


PRICES 


135 


!  s  ^e  have  seen  ,n  an  unique  position  as  money  ma- 
terials. The.r  relation  to  one  another  or  the  value  of 
one  m  terms  of  ^he  other  is  therefore  of  great  im- 
I  P";'""*^^:,  If  «"y  °ther  commodities  were  recognized 
with  similar  universality,  their  relation  to  one  another 
would  at  once  become  of  equal  importance  because  of 
the  relation  of  the  group  to  commodities  in  general 
which  such  recognition  would  imply 

The  relation  of  gold  and  silver  to  one  another  in  re- 
spect to  value  depends  upon  three  conditions.  These 
ar  :  first^  the  quantities  of  each  which  are  in  existence  at 
any  particular  moment;  second,  the  net  prospective  fu- 
hire  production  within  a  given  period,  and  third,  the 
status  of  each  of  the  metals  in  monetary  law 

137.  Quantity  of  gold  and  silver  in  existence -Tht 
gold  now  m  existence,  in  circulation  as  money,  hoarded 
I  by  govermnent.  or  by  private  persons,  and  in  the  form 
of  manufactured  articles  or  objects  of  art-jewelry  and 
elike-and  the  quantity  of  silver  existing  in  similar 
fomis  may  not  be  susceptible  of  precise  determination 
and  large  quantities  of  both  metals  exist  in  forms  which 
can  never  come  into  the  market  in  any  serious  sense, 
let  the  two  quantities,  unknown  though  they  may  be 
exercise  an  important  influence  upon  one  another,  and 
upon  those  portions  of  each  metal  which  do  come  into 
tlie  market. 

The  net  prospective  production  may  similarly  be  dif- 

cult  to  determine  precisely.    The  production  of  gold 

d  of  silver  during  a  specific  period  may  be  known 

'.thm  reasonable  limits  of  accuracy,  and  the  prospective 

rements  durmg  a  similar  period  may  be  estimated. 

tat  the  quantities  which  have  been  used  up  during  a  like 

^nod  are  more  difficult  to  determine.    The  abrasion  of 

Min  can  readily  be  estimated,  but  it  is  more  difficult 


136 


ECONOMICS 


to  determine  the  amount  of  loss  of  gold  and  silver  iisid 
in  the  arts  und  the  amount  lost  beyond  reach  of  re- 
covery. 

The  net  increments,  however,  as  they  arc  reveakd 
from  time  to  time,  undoubtedly  influence  the  value  of 
one  metal  in  terms  of  the  other.  Thus  a  long-continued 
excess  of  production  of  gold  over  the  production  of 
silver  would  undoubtedly  depreciate  gold  and  appreci- 
ate silver,  as  a  long-continued  excess  of  silver  has  dur- 
ing recent  years  had  the  contrary  effect.  If  suddenly 
there  were  to  appear  in  India,  for  example,  a  long- 
concealed  hoard  of  gol<l  of  enormous  dimensions,  by  no 
means  an  impossible  contingency,  the  value  of  gold, 
other  things  being  equal,  would  necessarily  decline. 

138.  National  monetary  lates. — If  all  countries  had 
an  uniform  and  unalterable  monetary  law,  changes  in 
the  relative  values  of  gold  and  silver  would  still  occur 
through  changes  in  the  international  trade  relations  of 
the  different  countries.  But  the  monetary  laws  of 
countries  within  the  sphere  of  international  trade  rela- 
tions are  not  uniform,  and  are  more  or  less  frequently 
subject  to  alteration. 

Thus,  for  example,  Japan  possessed  at  one  time  a 
silver  currency,  but  altered  her  monetary  law  in  such 
a  way  that  gold  became  the  standard  instead  of  silver. 
At  one  time,  also,  Germany  used  a  large  amount  of  sil- 
ver currency  and  a  relatively  small  amount  of  gold  cur- 
rency. After  the  Franco-Prussian  war,  Germany  with- 
drew a  large  amount  of  her  silver  currency  and  substi- 
Mited  gold.  France,  Belgium,  Italy  and  Switzerland 
(tlie  Latin  Union)  had  an  uniform  monetary  law  by 
which  the  mints  of  these  countries  coined  all  silver 
offered  to  them  at  a  certain  definite  proportionate  value 
in  respect  to  gold,  and  then,  in  1873,  suddenly  changed 


PRICKS 


137 


tlie  law  and  limited  the  amount  of  sUver  which  their 
mints  were  pennitted  to  coin 

ilartZn  '"  "r^'Tr  '"""  ™y  P'°^^'^  effects  sim- 
t.t  es  of  the  metals  extracted  from  the  mines  and  se^t 
mto  the  n.arket.  either  through  the  sudden  or  gradTa 

The  effect  of  alterations  in  the  quantity  of  the  metals 
employed  for  the  settlement  of  Uernational  tr^nsae 
t.ons    however  these  alterations  may  be  caused    ^sto 

;   4  i  :  tdr'Tr-"*"^^'  "-  ex'pressed Tnlll 
01  these  metals.     Thus,  an  increase  in  the  oimntlt^  „f 

sJver  offered  in  the  market  depresses  the  excha^glVe 
tween  Ind.a  and  Gi^at  Britain,  because  in  India  prices 
re  expressed  m  silver  and  in  Great  Britain  price,  a^e 
xpressed  m  gold.    Similarly  an  advance  in  the  priL  o 
ver.  due  to  excess  of  demand,  will  alter  the  excLnge 
etween  the  United  States  or  Canada  and  ChTna  be- 
cause pnces  m  Canada  and  the  United  States  are  ex 
pressed  m  terms  of  gold,  and  prices  in  China  are  Z' 
pressed  in  terms  of  silver.  ^" 

The  fluctuations  of  international  prices  from  tl,U 
ca.se  alone  are  very  considerable.  TheS  rZn  ft 
t  e  faU  m  the  pr.ce  of  silver  may  be  very  trifling 
^h.pment  of  a  few  thousand  ounce^  may  cZuse  a  f" LJ 

wlVr-^^  ^"'^r'"*  ''"  thHrsatlonl 
nich  toilow  are  immediately  affected  by  that  ciro.™ 


will  be  paid  for  at  the  rate  of  40 


or,  and  at  the  next  moment, 


cents 
consequence 


per  gold  dol- 


of, 


change 


138 


ECONOMICS 


in  the  value  of  silver,  goods  of  the  same  kind  will  be 
paid  for  at  the  rate  of  41  cents  or  of  30  cents,  as  the 
case  may  be. 

140.  Bimetallism  a  cure? — The  steady  decline  in  the 
value  of  silver  in  terms  of  gold  from  the  historical  cir- 
cumstances which  have  been  indicated  has  at  times  so 
seriously  demoralized  foreign  exchange  between  gold- 
and  silver-using  countries  respectively  that  proposals 
have  been  made  from  time  to  time,  when  the  situation 
became  unusually  acute,  to  fix  once  and  for  all  the 
value  of  silver  in  terms  of  gold.  Proposals  of  this  kind 
have  varied  in  form;  but  they  are  usually  described 
under  the  general  name  of  bimetallism  because  they  in- 
volve the  acceptance  of  both  metals  as  a  monetary 
standard. 

It  has  become  obvious  that  only  a  general  interna- 
tional agreement  involving  also  the  control  of  the 
mintage  of  silver  by  all  countries  could  eflfect  the  desired 
result.  Such  an  international  agreement  has  not  yet 
been  arrived  at.  On  the  contrary,  the  tendency  of  the 
commercial  nations  appears  to  be  to  regard  silver  not 
as  an  international  currency  medium  but  as  a  com- 
modity, and  to  allow  it  to  reveal  its  relation  to  gold  in 
the  market  as  do  other  commodities.  This  attitude  has 
been  brought  about  largely  through  the  increase  in  the 
production  of  gold  and  through  the  rise  in  genera! 
prices  which  has  occurred  from  this  and  other  causes. 

Bimetallism,  as  a  propaganda,  arose  during  a  period 
of  falling  prices,  and  subsided  during  a  period  of  rising; 
prices.  The  object  of  bimetallism  is  to  diminish  those 
fluctuations  of  prices  which  arise  in  consequence  of  the 
variation  of  the  value  of  silver  in  terms  of  gold.  It  is 
thought  by  those  who  advocate  bimetallism  that  fluctu- 
ation of  prices,  involving  as  it  does  disturbance  of  the 


pnicEs 


139 


economic  equilibrium,  is  an  evil,  and  that  it  ought  to  be 
prevented  m  so  far  as  nossililp     ti,  . 

fl.,„t..o*-  ,  PossiDle.     The  causes  of  price 

fluotuafons  are,  however,  very  numerous,  and  many  of 
them  would  not  be  affected  by  any  change  in  ZL^^ 


I 


I 


CHAPTER   V 


SOME    FACTORS    THAT    AFFECT    PRICES 


141.  Climatic  variations. — While  the  prices  of  com- 
modities are  determined  in  the  market,  either  in  the  spe- 
cial or  in  the  general  sense  of  the  word,  by  the  forces 
of  demand  on  one  side  and  supply  on  the  other,  many 
influences  contribute  to  determine  the  extent  and  char- 
acter of  demand  and  supply,  and  to  determine  the  state 
of  mind  of  buyers  and  sellers  respectively.  The  prin- 
cipal influences  are  described  in  this  chapter. 

A  dry  season  will  cause  an  advance  in  the  price  of 
wheat  through  the  indication  which  it  gives  of  a  short- 
age in  the  crop.  A  drought  in  the  United  States,  Can- 
ada, Russia,  Roumania,  Germany  or  Great  Britain 
would  have  this  eflFect.  So,  also,  heavy  rains  in  harvest 
time  would  "lay"  the  crop  and  render  harvesting  op- 
erations difficult.  Some  grain  would  be  totally  de- 
stroyed. The  cotton  crop  is  peculiarly  liable  to  be 
affected  by  the  weather. 

The  failure  in  the  harvest  of  one  grain  will  often 
affect  seriously  the  demand  for  other  grains  to  take  the 
place  of  the  grain  in  which  the  shortage  has  occurred; 
for  example,  the  failure  of  the  rye  crop  in  Eastern  Eu- 
rope will  have  t:.e  effect  of  raising  the  price  of  wheat 
and  of  potatoes  because  the  peasants  who  customarily 
consume  rye  will  be  driven  to  obtain  a  substitute. 

Some  part  of  the  deficiency  in  the  crop  must  be  met 
by  deficiency  in  consumption,  but  the  demand,  in  gen- 
eral, will  usually  be  great  enough  to  cause  an  advance 
140 


SOME   l-ACJOUS    THAT   AFFECT    PRICKS     141 

in  the  price  of  u  large  range  of  consumable  commod- 
ities should  there  be  a  serious  deficiency  in  any  impor- 
tant crop,  although  such  a  deficiency  will  dimhiish  the 
resources  of  the  people  affected  by  it.  The  failure  of 
tlie  rice  crop  in  China  or  Japan  or  the  failure  of  the  mil- 
let crop  m  JManchuria  will  not  only  impose  serious  suf- 
ferings on  the  part  of  the  people  in  these  countries,  but 
Hill  tend  to  mcrease  the  price  of  other  foodstuffs  which 
must  be  consumed  at  least  to  some  extent  in  order  to 
support  the  population. 

An  abundant  harvest,  on  the  other  hand,  in  any  one 
important  grain  will  tend  to  diminish  the  prices  of  all 
fo(Klstuffs  as  well  as  to  increase  the  resources  of  the 
lieople  of  the  producing  area,  and  thus  to  increase  their 
demand  for  the  commodities  habitually  consumed  by 
them.  An  abundant  harvest  thus  tends  to  diminish  food 
prices,  and  to  increase  the  prices  of  other  consumable 
commodities. 

142.  Effect  of  war  on  prices.~The  outbreak  of  war 
affects  prices  in  a  complicated  way.    In  the  first  place 
the  prices  of  war  material  will  be  raised  in  consequence 
"f  the  sudden  increase  of  demand  for  such  material, 
he  extent  and  character  of  such  price  movements  must 
depend  upon  the  locality  and  natur.  of  the  campaign. 
Ihe  campaign  against  Arabi  Pasha  in  Egypt,  for  in- 
stance, led  to  a  great  advance  in  the  price  of  mules 
owing  to  the  great  numbers  which  were  required  for 
military  purposes.    During  the  progress  of  the  South 
African  Campaign  large  numbers  of  mules  and  horses 
«ere  purchased  in  Europe  and  in  America  for  trans- 
liortation  and  for  the  cavalry  and  artillery.    The  result 
of  this  extensive  increase  in  demand  was  a  scarcity  of 
mules  and  horses  for  years  afterwards. 
War  also  increases  the  demand  for  canned  meats  and 


148 


ECONOMICS 


the  like,  for  military  clothing  and  for  guns  and  ex- 
plosives. It  also  tends  to  diminish  supply  through  the 
withdrawal  of  working  force  from  field  or  factory,  and 
thus  to  increase  some  prices,  even  thougJi  the  total  de- 
mand should  fall  off  in  consequence  of  the  absence  of  tlie 
usual  consumers. 

During  a  great  war  the  urgent  demand  for  capita] 
in  the  form  of  national  loans  and  for  increase  of  the 
public  income  in  the  form  of  taxes  tends  to  raise  the 
rate  of  interest  and  to  divert  capital  from  its  customary 
channels.  A  portion  of  the  demand  induced  by  the  war 
is  thus  diverted  rather  than  reduced;  but  the  diversion 
of  capital  always  causes  disturbance  to  the  industrial 
and  commercial  equilibrium. 

If  the  theater  of  war  is  a  grain-producing  country 
like  Russia,  Roumania  or  Manchuria,  for  example,  it 
might  have  the  effect  of  diminishing  the  export  of  wheat 
either  because  the  ports  were  blockaded,  because  of  tlie 
withdrawal  of  working  force  for  the  army  or  because  (if 
the  actual  military  occupation  of  the  wheat  fields.  In 
Manchuria  during  the  Russo-Japanese  War  the  wlieat 
trade  of  the  country  was  practically  destroyed  by  the 
immense  extent  of  the  fronts  of  both  armies  extending, 
as  they  did,  over  a  great  part  of  the  plain  of  Central 
Manchuria  at  Liaoyang  and  IMukden. 

143.  Effect  of  political  elections. — In  England  a 
general  election  affects  trade  to  a  comparatively  small 
extent.  If  it  occurs,  for  example,  between  May  and 
August  it  affects  the  retail  trade  of  London,  and  if  it 
occurs  in  harvest  time  (which  is  rare)  it  affects  retail 
trade  in  the  rural  districts;  but  in  the  absence  of  any 
political  issue  affecting  seriously  the  business  of  the 
country  as  a  whole,  trade  is  not  usually  materially  in- 
fluenced.   It  is  otherwise  in  the  case  of  a  Presidential 


SOMK    KACTOUS    THAT  AFFKCT    PRICKS     ,43 
election  in  the  UnitcJ  States.     The  relation,  of  ,K,li 
t-cs  and  eom„,eree  in  that  country  are  ...  iZl  H   t" 
>.uch  an  election  always  affeets  prices  „„,re    " tss  bv 
|^.t^„t.eipations  of  ,„  ine  J„.  or  a  .,in,i:L£;  S 

U4.  Change*  in  produclion.~\XUh  the  «erms  of 
the  ffreat  inventions  nmde  their  appearai.ef  in  the 
eiKhteenth  century  or  e;irll,.r  n.  ■  "  ",  '"  ^"^ 
cntributed  n,uch  UheT  ^.^^nt  Th  T1"''"' 
-  jroved.  although  nclf  hy"'ny^„::«rpTr;e"eE 
he  railway  was  enormously  improCed  by  thrannli™' 
on  of  stean.;  the  steamship,  'the  eleetHc  eleSanr 
«ht.ng  by  gas.  the  incandescent  elcctne  light  tetde 

distinguished  itseii  by    h  '  L  ^^^^^^^^^^^ 
n-achm^^^^^^  by  the  eLmous  'J^^^X^^Z 
„  ^t-  ?  .    '""""*'""^  ""•J  improvements  have  great- 

The  appetite  grows  by  what  it  feeds  on      TK 

ts  n  a  demand  for  new  resources  of  supply  Td  /or 
subsidiary  mventions.     The  new  demand   fl       \ 

Zn  th;  .'=°'"P^t't'°n  of  sellers  speedily  brings 

t:  o     r"  '"  'P"?  f  ""'''  i-'-l' primarily  be! 
uuie  ot.  the  mcreased  demand      TIib  r,,  j     i-         . 

;;-'eseent  gas  .nant.es  b'^ght  Ito  ?  1^^^^  "I 

:;'  '"''^^'f"'.  ^h'-eh  had  been  previously  p^ Ld 

filnVnf       ^  susceptible  of  utilization  for  the 

^^-  of  .ncande^cent  electric  lamps.     Many  che^cal 


144 


ECONOMICS 


compounds  which  were  iiscil,  and  even  tlicn  compnni- 
tivcly  rarely,  as  <lniKs.  and  pnHliiced  in  small  <|iiaiiti- 
ties  for  pharmaceutical  purposes,  have  suddenly  niadc 
their  appearance  as  ini]>ortnnt  re-a^ents  .  .  fheniical 
processes  on  a  nianufneturing  scale. 

To  begin  with,  the  wholesale  dealers  arc  exhausfiil. 
perhaps  even  tlie  druggist  shops  are  runsncked  for  sii|i- 
plies,  the  manufacturers'  stores  are  depleted,  and  tlie 
price  rises  hecnuse  of  the  urgent  demand.  Then  the 
manufacturer  turns  his  attention  to  the  new  phenoiiii'- 
non.  lie  begins  to  manufacture  in  quantity.  The  priif 
may  rise  vigorously  before  he  is  able  to  put  his  first  sup- 
plies on  the  market.  Then  if  the  eomnuxlity  can  l)e  niadf 
from  raw  material  readily  j)rocurable,  the  manufacturers 
are  able  ere  long  to  place  it  on  the  market  in  quantity. 
Under  the  assumed  conditions  competition  will  scmhi 
become  active,  and  the  price  will  soon  fall  to  a  pi)iiit 
even  lower  than  it  was  before  the  new  demand  arose. 
Increased  demand  has  induced  increased  production, 
and  this  has  reacted  upon  price.' 

While  an  increase  in  demand  may  induce  an  incn'.isc'il 
production  at  a  diminished  cost,  a  diminution  in  denmiiil 
resulting  in  a  lower  price  may  induce  efforts  towiini 
reduced  cost  of  production  in  order  to  meet  without  loss 
of  profit  the  conditions  of  a  lower  level  of  prices.  This 
is  a  familiar  exj)erience  in  all  manufacturing  indu.strics. 
When  demand  is  brisk  and  prices  are  high  enough  ti> 
yield  a  manufacturing  profit  above  the  average,  costs  of 
production  are  not  scrutinized  closely ;  but  when  deniami 
and  prices  are  falling  the  manufacturer  may  find  him- 
self encountered  by  the  dilemma  of  reducing  the  cost 
of  production  or  of  going  out  of  business.     Since  the 

'  An  episode  in  the  history  o(  Tartrate  of  Antimony,  or  Tartar  Emetic,  whiil  | 
occurred  about  18H0,  is  used  in  the  above  iUuitratio.*. 


SOME    FACTORS    THAT   AFFKCT    PRIPES     US 

m>Vh-  price  will  under  such  conditions  tend  to  ap- 
|.r..ach  the  sui.i,ly  prjix-  „f  iIh..  nmrKinal  manufacturer, 
ihut  IS  to  say,  the  manufacturer  who  can  continue  his 
Imsmess  at  tin.-  reduce,!  rate  of  price,  the  nmnufacturer 
«h<.  IS  able  to  economize  in  his  cost  of  prrKluction  to  the 
Kfc^test  extent.  «ill  in  a  falling  market  so,-,  ive  longest • 
ami  will  ,„  a  rising  market  gain  most.  I.cc.u,-*  nltl,,,,,.!, 
his  costs  may  advance  later  in  aceordanc.  ,,  id,  „  g,.ni.",; 
upward  movement  of  prices,  they  v.  I!  n.,t  UkcU   ad 
vance  all  together,  and  some  of  hi,  i.   ,„„„i.,,  ^ill  l,c 
found  to  be  iHJrmanent.     ExchanH.  thus  reads  .m..,,. 
|.nKluction.  tending  under  certain  io„diM„ns  to  rui.se 
the  cost  of  production,  and  under  other  cni'tions  to 
reduce  It.    Production  also  reacts  upon    x .LaMtr,.-  f|,e 
increase  of  supply  tends  to  depress  price  and  the  diminu- 
tion of  supply  to  enhance  it. 

1*3.  Variation  in  relations  of  commoditicg.— Such 
variations  are  closely  related  to  those  caused  by  the  in- 
vention of  new  i)rocesses;  hut  they  are  also  related  to 
tlie  substitution  of  one  commodity  in  a  group  for  n- 
"ther  in  the  same  group  because  of  certain  of  the  util- 
ities of  which  the  latter  may  be  susceptible  under 
iwain  conditions  of  prices. 

Cotton  will  be  substituted  for  linen  for  certain  pur- 
poses when  the  price  of  cotton  advances;  for  certain 
-^hcr  purposes,  for  surgical  dressings,  e.  g..  linen  must 
«>nt,nue  to  be  used  no  matter  what  the  price  may  be. 
Lnen  W.II  be  substituted  for  silk  under  certain  .r,ndi- 
ons  of  the  price  of  silk.  If  the  price  of  silk  falls,  there 
I'll  be  a  tendency  for  silk  to  l,e  used  in  prcf^r-nce  to 
™en;  e.  g.,  in  the  Far  East  and  in  Russia  silk  is  made 
^  om  the  cocoons  of  the  silkworms,  which  is  not  so  fine 

?  I?  ,7".      "^*''"'*  """''"  ^y  silkworms  under  care- 
Mn.ltivat.on  of  the  mulberry.    This  rough  silk  is  ex- 


11 


146 


ECONOMICS 


tensively  used  for  male  clothing  because  it  is  light  and 
durable,  and  clotliing  made  of  it  is  only  twice  the  prict 
of  linen.  If  the  price  rose  above  tliis  proportion,  there 
would  be  a  tendency  to  substitute  linen. 

During  the  South  African  war  there  was  a  great 
demand  for  light  woolens,  and  the  price  of  fine  numbers 
of  woolen  yarns  advanced.  The  use  of  "unions"  or  mix- 
tures of  wool  and  cotton  increased  considerably,  cotton 
being  substituted  for  wool  in  the  manufacture  in  order 
to  diminish  the  cost  of  production.  The  manufacturers 
were  thus  enabled  to  maintain  the  price  (although  the 
goods  were  inferior),  and  thus  to  sustain  the  demand. 

The  preparation  of  attractive  designs  or  styles  in  a 
relatively,  cheap  material  often  diverts  demand  to  it 
from  more  expensive  material  in  which  the  designs  are 
less  varied  and  attractive.  This  is  the  case  especially 
during  periods  of  depression  when  incomes  are  relative!;, 
low.  The  use  of  French  foulards  or  fine  printed  calico. 
for  which  Mulhouse  became  famous,  s  'ijcrseded  to  some 
extent,  between  1877  and  1886,  the  use  of  silk  and  satin 
in  ladies'  dresses.  Printed  linen  about  the  same  time 
superseded  hair  cloth  and  other  relatively  expensive  ma- 
terials in  upholstery. 

146.  Applied  to  metals. — In  the  markets  for  metals 
an  advance  in  the  price  of  iron  will  diminish  the  differ- 
ence between  that  price  and  the  price  of  other  metals 
like  copper  (which  is  even  more  suitable  than  iron  for 
many  jnirposcs  for  which  iron  is  customarily  used  when 
the  price  of  copper  is  relatively  high.)  If,  for  ex- 
ample, copper  nails  were  five  times  the  price  of  iron 
nails  and  lasted  four  times  as  long,  iron  nails  would  lie 
less  costly  to  use;  but  if  iron  advanced  until  the  priee 
of  copper  were  otdy  three  times  the  price  of  iro-i.  it  wmilil 
be  more  economical  to  use  copper  nails  for  t.I  those  pnr- 


SOJIE    FACTORS    THAT   AFFECT    PRICES     147 

poses  in  which  durability  was  an  important  considera- 

ti(in. 

On  the  other  hand,  if  the  price  of  copper  rose  instead 
..f  the  price  of  iron,  there  would  be  a  tendency  for  iron 
especially  galvanized  iron,  to  be  used  for  many  of  the 
purposes  for  which  copper  had  previously  been  em- 
ployed. For  those  purposes,  however,  for  which  copper 
m  the  existing  state  of  technical  knowledge  is  indis- 
pensable, copper  would  continue  to  be  employed  to 
whatever  height  the  price  might  go.  For  many  electri- 
cal purposes,  for  the  construction  of  magnetic  observa- 
tories and  for  the  outer  sheathing  of  wooden  ships,  the 
use  of  copper  is  at  present  indispensable.  In  the  event. 
however,  of  the  price  becoming  very  high,  it  would  come 
into  competition  for  some  purposes  with  silver 

The  diversion  of  demand  from  one  member  to  another 
of  a  complementary  group  leads  to  an  advance  in  the 
price  ,n  response  to  the  increased  demand,  although 
7'"g  to  the  increased  production  in  response  to  that 
demand,  the  price  may  eventually  fall  below  its  previous 
ponit.  Thus  a  demand  for  aluminum,  nickel  and  man- 
Sanese  has  led  to  the  production  of  these  metals  on  an 
increasing  scale,  and  to  reductions  in  their  prices  For 
eertam  purposes  they  compete  with  one  another  and 
I  'utii  other  metals. 

The  expression  "complementary  commodities"  also 
"Pi.lics  to  groups  of  commodities  vhieh  are  either  man- 
ufactured together  and  are  therefore  subject  to  joint 
-St  or  are   utilized   together  in   one  manufacturing 

other  metals  than  copper  are  produced,  although  tlieir 
pro,hK.tion  IS  not  the  chief  object  of  the  process  of  re- 
'J'letion ;  and  in  the  smelting  of  iron,  coal  is  use<l  Cop- 
per, antimony,  silver  and  sometimes  other  metals  are 


ill 


148 


ECONOMICS 


thus  in  one  sense  complementary,  and  coal  and  iron 
are  complementary  in  another  sense. 

147.  Changes  in  consumption. — Increase  in  popula- 
tion occurs  from  two  causes;  from  natural  increase — the 
number  of  births  minus  the  number  of  deaths — and  net 
immigration — that  is,  immigration  less  emigration.  A 
net  increase  of  the  population  involves  an  increase  of 
demand  unless  the  character  of  the  new  population  in 
respect  to  consumption  and  to  effective  demand  is 
inferior  to  that  of  the  former  population.  There  is. 
indeed,  always  a  diflFereiice  ii.  consuming  power.  x\n 
increase  in  the  birthrate  does  not  necessarily  mean  an 
immediate  increase  in  the  demand  for  food  customarily 
consumed  by  adults.  Yet  if  this  increase  continues  for 
some  years,  the  increased  demand  of  the  growing  chil- 
dren will  become  noticeable. 

Italian  immigrants  on  their  arrival  in  New  York  were 
reported  a  few  years  ago  as  being  frequently  so  habitu- 
ated to  scanty  fare  that  they  were  unable  to  eat  a  gen- 
erous meal.  Gradually  they  acquired  the  power  tn 
consume  more  largely.  The  great  improvement  in  tlic 
economical  position  of  Southern  Italy  has  probably 
rendered  this  observation  less  tnie.  The  Italian  immi- 
grants to  Patagonia  are  reported  to  have  acquired  the 
habit  of  eating  enormous  quantities  of  meat,  a  di<-*  tn 
which  they  were  wholly  unaccustomed  in  their  own 
country. 

The  gradual  assimilation  in  respect  to  quantity  anfi  j 
character  of  consumjition  of  the  new  to  the  old  ftoptila- 
tion  results  inevitably  in  an  increase  of  consumption  I 
and,  as  the  added  jjopulation  l)egins  to  aflect  prmlnction.  | 
eventually  in  a  great  increase  of  effective  demaiMJ  ami 
of  supply  alike. 

148.  Growth  of  p(rpulation  in  urban  center$.—\-dr'<i- 1 


SOME   FACTOKS    THAT   AFFKCT    PRICKS     149 

tions  in  price  which  are  due  to  increase  of  population 
are  „.ost  conspicuously  noticeable  in  the  case  of  rapidly 
grow.ng  urban  centers.  The  growth  of  towns  is  no  new 
phenomenon,  no.  .s  it  confined  to  America.  The  ancie,^ 
emocrac,es  were  created  by  the  towns  as  mode 
democraaes  are  n.aintained  by  them.  Concentration 
0  population  on  particular  sites  has  been  due  n t^e^ 
.n  es  to  many  causes.    Such  a  concentration  may  be  due 

0  the  fact  that  the  site  is  a  strategic  point  for'de  ens 

n  S  «  "^    "fr  '^"'''^'^-  '"'■  P""«-'  administra- 

l,^^'  ""'^  '^°"'^""'  ^°'- 1^«*^^  like  Venice,  Chi- 

affo  and  Montreal,  or  for  communication  like  New 

^  ork,  whose  harbor  has  made  it  the  point  of  contact 

between  the  new  world  and  the  old.     Towns  g  ow 

St2"""  "  ''";'°,  '"  ■'"P'"''  '"""'^  ecclesiaslicaT 
>u.I<l  ngs  .s  many  of  the  cathe.lr.1  cities  in  England 
round  groups  of  scholars  as  Oxford  and  Cambridge,  o 
the  center  of  agricultural  regions  like  Moscow  and 

In  d7h;      ■,'  "*r  °'  ^'"^^  ""^^  ^-'t-^  -hioh  have 
iH^en  debberat.  Jy  planted  like  St.  F^tersburg,   Wash- 

t'  the,r  s„.tabH,lj-  U,r  p^Witical  administration.     So„,I 
-  are   founded   with    4m.-n\ty   upon   their   site" 

wf  ''  "V'^ -"•*  "*  --l^»t«'  occurrence. 
■t  Jetersbtirg  and  Ch-ongo  are  largely  U,ilt  upon 
P.l«  .„  swamps;  Venice  a,Kl  Amsterdam  wer«  built  i" 

lie  ^6A* 

HO   Cau»e,  for  m oven, r.ts  of  population.-Concen- 

I  S     ,!'•"''  ";"  '"■'""'  "'''''  '"  '""dern  Indus- 

.a  countries  occurs  from  one  or  the  other  of  two  gen- 

1  groups  of  causes:  first,  tho.se  causes  which  arise  in 
fl-e  nfes  an,l  towns,  the  attraction  of  higher  wages  f,^ 

tTf  *'.'7,^  ««-"•*-■  employ„.e„t.  the!    r  c- 
"»ns  ,.f  socml  life,  facilities  for  education  and  the  lik'- 


150 


ECONOMICS 


and,  second,  those  causes  which  arise  in  the  rural  dis- 
tricts, the  isolation  of  the  farms  (especially  in  thost 
parts  of  a  country  where  the  system  prevails  of  grant- 
ing to  railways  and  to  homesteaders  alternate  sections ) , 
the  arduousness  of  agricultural  life,  the  deficiency  of 
comfort  in  the  farmhouses,  the  absence  of  general  so- 
ciety, the  frict»»n  genenteil  by  intimate  contact  with 
a  small  nuasber  of  persons  unrelieved  by  variety,  the 
arfcitrariness  of  the  chiefs  of  the  farming  community, 
their  deficient  sense  of  justice,  their  sordidness  and  some- 
times their  inefficiency  as  agriculturists — defects  which 
render  it  difficult  for  the  farmer  to  secure  hired  assist- 
ance, and  even  to  retain  the  services  of  his  own  family. 
whom  he  habitually  undervalues  and  underpays.  The 
flights  of  ])easants  in  Eastern  Europe  from  excessive 
burdens  have  their  counterpart  in  the  flight  of  the  farm- 
ers' sons  from  the  yoke  of  farm  labor  in  nearly  all 
agricultural  countries  under  the  conditions  of  commer- 
cial farming. 

Rural  depopulation  occurs  through  migration  to  other 
rural  districts,  to  the  towns  or  through  emigration.  In 
any  case  it  tends  to  diminish  the  working  force  and  to  di- 
minish local  production.  Migration  may,  however,  ti^iid 
to  improve  the  condition  of  those  who  remain  as  well 
as  of  those  who  migrate,  the  first  through  the  increase 
of  agricultural  wages  due  to  the  relative  scarcity  of 
labor,  and  the  second  through  the  transference  of  their 
labor  to  a  more  remunerative  field.  The  congested  dis- 
tricts of  Ireland,  Eastern  Austria,  some  parts  of  Cen- 
tral Russia  and  many  parts  of  Southeastern  China 
have  been  relieved  at  least  temporarily  by  emigration. 
Rural  depopulation  has  occurred  in  Ontario  in  cotise- 
quence  of  migration  to  the  Ontario  towns,  to  thi'  jirairii' 
provinces  and  to  the  T'nited  States.    In  Great  Kritain. 


mm.. 


SOME    FACTORS    THAT   AFFECT    PRICES     151 

rural  depopulation  proceeds  at  a  rapid  rate  stimulated 
by  the  mdustrial  prosi)erity  of  tlie  towns  and  by  enii- 
Krution.  It  is  not  a  little  remarkable  tluit  while  in 
(ireat  Britain  and  in  America  complaints  siiould  be 
made  of  the  undue  urbanization  of  the  i>opulation  pre- 
(isely  opposite  complaints  should  be  made  in  India 
where  the  decay  of  industries  in  the  towns  has  led  to  the 
riiralization  of  the  jjcople. 

l.'O.  Effect  on  prices.— The  movements  of  popula- 
tum  result  in  diminished  deman.I  from  tiie  places  which 
the  i>eople  leave,  and  increased  demand  in  the  place  to 
wiirch  they  go.  Deficient  harvests  in  the  upper  valley 
of  the  nnic,.er.  in  1899.  cansci  so  ^^,,,.1  a  .lecline  m 
ttie  deniand  of  the  peasant  villafrcs  tl,.t  the  towns  (like 
M..hilev)  were  struck  by  industrial  .lepression.  Artisans 
and  traders  were  forced  by  this  depression  to  leave  the 
towns  for  cities  (Smolensk.  JMinsk,  Warsaw,  etc.)  or  to 
enngrate  to  America.  The  cities  gained  in  population, 
«aKes  fell  and  there  were  industrial  disturbances  owing 
»  the  fall  of  wages.  Meanwhile  the  n.in  of  the  small 
towns  affected  the  distributi.«  of  c-ountry  produce,  and 
prices  m  the  cities  advar>ced  in  consequence  of  the  in- 
creased population  (although  the  power  of  consump- 
tion i)er  head  had  doubtless  diminished)  and  in  conse- 
quence of  the  restriction  of  supply. 

But  the  advance  of  prices  in  the  cities  penetrated  to 
the  producmg  areas,  and  in  course  of  time  economK; 
eil"'Iionum  was  again  restored. 

In  the  countries  to  which  the  emigrants  went,  the  de- 
mand was  increased  by  the  inrush  of  new  consumers 
and  in  sp.te  of  the  increase  of  production,  which  was 
"le  result  of  the  immigration  of  industrious  people 
Priws  tended  to  advance  because  there  was  a  net  increa«J 
"1  the  consuming  power  of  the  newcomers.     It  is  well 


152 


IXONOMICS 


recognized  that  no  matter  how  frugally  immigrants  may 
have  lived  in  their  native  country,  they  quickly  adopt 
more  extravagant  habits  whenever  they  are  able  to  do  sd. 

131.  Changes  in  utandard  uf  comfort. — Changes  in 
the  standard  of  comfort,  especially  when  they  extend  to 
the  mass  of  the  people,  exercise  an  imjiortant  influence 
upon  demand.  Such  changes  are  induced  either  by  in- 
creased resources  in  the  form  of  increased  wages  (ir 
other  incomes,  or  tliuy  are  induced  by  increased  sup- 
plies of  certain  commodities  resulting  in  dimiriislud 
l)rices.  In  the  e'^nteenth  century,  the  customary 
household  beverage  was  home-brewed  l)eer.  Tea  «as 
used  .sparingly  even  by  the  well-to-do  classes,  lii 
the  early  part  of  the  ttinetcenth  century  tea  was  still 
relatively  exi)e!isive  and  was  rarely  consumed  by  the 
working  population.  The  development  of  tea  planta- 
tions, especially  in  India  and  in  Ceylon,  where  tea  plant- 
ing is  very  skillfully  conducted,  has  in  competition  with 
the  teas  of  China  and  .lupan  resulted  in  a  greatly  in- 
creased su])ply  and  a  considerably  reduced  price. 

The  masses  of  the  people  in  (Ireat  Britain  now  cnn- 
simip  tea  as  in  Continental  Europe  generally  the  masses 
of  the  people  consume  coffee.  Tlie  greatly  increaseii 
demand  has  been  responded  to  by  increased  sup])lits, 
and  jjrices  ha\e  tberefoi'e  not  risen,  the  change  ha\ iiii; 
been  gradual  and  the  business  of  tea-growing  Imvinfi' 
attracted  abundant  supplies  of  capital. 

The  situation  is  somewhat  different  in  the  case  of  l«'ei'. 
In  the  beginning  of  the  nineteenth  century  agrieult\nal 
laborers  and  even  small  farmers  consumed  beef  very 
rarely.  The  town  artisan  did  so  less  infrequently  '"it 
still  seldom. 

The  advance  of  wages  and,  no  doubt,  also  the  greater 
arduousness  of  laI)or,  induced  increased  consumptinii  (if 


SO.MK    FACTORS    THAT   AFFECT    PRICES     153 

liecf,  especially  in  the  great  industrial  centers.  The  con- 
sumption of  beef  per  head  went  up  enormously.  The 
supply  was  procured  from  the  Western  plains  where 
cattle  ranchiiijT  was  conducted  on  a  large  scale.  But 
the  drift  of  population  westward  caused  the  settlement 
of  large  tracts  of  country  previously  used  as  cattle 
ranges  (as  in  Southern  Alberta,  for  example).  Settle- 
nit'iit  was  more  profitable  than  cattle  raising  and  the 
ranchmen  sought  remoter  places  or  went  into  grain  or 
mixed  farming. 

The  supplies  of  stock,  instead  of  increasing  with  the 
ileiiiand,  diminished  with  it.  Greater  economies  were 
(xcrcised  in  dealing  with  beef,  yet  the  price  of  beef  has 
iidvaiieed  more  or  less  steadily — a  consequence  on  the 
(iiic  hand  of  the  change  in  the  standard  of  comfort  which 
induces  the  mass  of  the  jjcople  to  consume  beef  when 
I'oriiierly  they  did  not  do  so,  and  on  the  other  hand  of 
till  relative  diminution  of  the  available  sources  of  supply 
ill  face  of  the  increasing  demand.  Changes  in  standard 
of  comfort  divert  demand  into  new  channels  and  fre- 
(luetitly  lead  to  the  disuse  of  commwlities  previously 
extensively  used.  In  some  respects  such  changes  are 
imlistinguishable  from  changes  of  fashion. 

1.52.  Changes  of  fashion.^Vor  ages  changes  of  fash- 
ion have  been  important  causes  of  variation  in  price. 
Tills  cause  of  variation  affects  particularly  articles  of 
luxurious  consumption,  especially  tlie  finer  textiles  and 
jewelry.  Materials  like  Iximbazine  and  plush,  which 
were  fnr.nerly  in  extensive  use,  are  now  almost  unknown. 
The  factories  where  they  were  once  made  in  quantity 
are  now  closed  or  diverted  to  other  products. 

Risks  of  changes  in  fashion  are  so  great  that  in  order 
♦liat  the  businesses  affected  may  be  continuous,  such 
■  isks  must  be  taken  into  account  in  determining  the 


154 


ECONOMICS 


supply  price.  A  certain  number. of  the  commo<litiis 
subject  to  these  risks  may  be  sold  in  the  beginning  oi 
the  season  at  or  near  this  estimated  supply  price.  .\t 
the  cl  >se  of  the  season,  the  rema'  .der  are  either  sold  iit 
a  reduced  price— that  is,  at  the  demand  price  of  the  time 
— or  they  are  retained  for  subsequent  sale  or  for  remunu- 
facture. 

Fashions  sometimes  come  round  again  and  those  who 
have  been  able  to  keep  their  stocks  may  benefit.  Some- 
times, indeed,  oi,'  ashioned  things  attain  a  high  value 
because  of  the  i<  mand  for  them  on  account  of  the  ex- 
cellence of  theii  nanufacture  or  because  their  production 
in  the  old  manner  has  ceased.  Examples  of  this  plie- 
nomenon  are  Paisley  shawls  and  Sheffield  plate. 

Jewelry  which  has  gone  out  of  fashion  is  customarily 
melted  and  remanufactured,  hence  the  high  prices  which 
antique  jewelry  of  fine  design  brings  in  the  market. 
Precious  stones  are  set  and  reset. 


CHAPTER   VI 


EFFECTS    OF   COMPETITION    AND    MONOPOLY 

133.  Competition.— In  the  history  of  all  coinino<lities 
there  have  occurred  periods  of  relative  abundance  anU 
relative  scarcity — abundance  when  consiuners  or  pur- 
chasers have  had  the  advantage  of  producers  or  sellers 
competing  with  one  another,  and  scarcity  when  pro- 
ducers and  sellers  have  had  the  advantage  of  consumers 
or  purchasers  competing  with  one  another.  Indeed, 
there  are  few  commodities  in  the  production,  transporta- 
tion or  retailing  of  which  there  is  not  discoverable  at 
some  point  an  element  of  scarcity  or  quasi-monopoly. 
It  is  useful  to  assume  the  existence  of  an  atmosphere  of 
universal  competition,  because  in  the  absence  of  some 
assumption  cf  this  kind  no  constructive  reasoning  could 
be  conducted;  but  it  must  be  realized  that  continuous 
correction  must  be  made  on  account  of  the  divergence 
of  actual  conditions  from  those  which  would  occur  in 
an  atmosphere  of  unrestricted  competition. 

^\'ithin  the  area  of  the  market  every  buyer  of  gotxls 
of  a  certain  kind  is  a  competitor  of  every  other  buyer 
of  such  goods.  So,  also,  every  seller  competes  with 
every  other  seller  of  goods  similar  to  his  own.  The 
competition  of  sellers  determines  the  sellers'  price  and 
tile  competition  of  buyers  determines  the  buyers'  price. 
If  the  sellers  are  many,  and  if  their  urgency  to  sell  is 
L'rnat,  the  competition  may  be  almost  fierce.  A  remark- 
able instance  of  the  fierce  competition  of  eager  and 

IS5 


156 


ECONOMICS 


urgent  sellers  may  be  found  in  the  narrow  streets  of 
retail  shops  in  Minsk  in  Poland.  There  the  numerous 
sellers  of  all  kinds  of  wares  crowd  the  pavement  offer- 
ing their  grxxls  to  all  passers-by,  almost  dragging  tlitni 
by  main  force  into  the  narrow  doorways  of  their  little 
places  of  business.  Perhaps  nowhere  in  the  world  is 
competition  for  trade  so  manifestly  keen. 

If  the  buyers  are  many  and  their  urgency  to  buy  is 
great  the  competition  among  them  may  be  equally  fiiicf. 
Before  places  of  amusement  where  there  are  no  regular 
arrangements  for  orderly  purchase  of  tickets,  the 
struggle  for  admittance  is  often  almost  ferocious. 

If,  on  the  other  hand,  either  buyers  or  sellers  are  few 
in  number,  and  if  the  quantity  of  goods  which  buyers  arc 
prepared  to  buy  is  known  by  them  to  be  less  than  tiie 
quantity  offered  in  the  market,  or  if  sellers  are  indifferent 
because  they  know  that  the  quantity  of  goods  available 
for  sale  is  less  than  the  quantity  demanded,  the  comiieti- 
tion  in  either  case  is  slender.  Where  buyers  are  in  the 
strongest  position  they  will  be  able  within  certain  limits 
to  dictate  their  terms ;  and  where  sellers  are  in  the  strong- 
est position  they  also  will  be  able  within  certain  limits 
to  dictate  their  terms.  The  limits  will  be  defined  in  the 
first  case  by  the  urgency  of  the  sellers  and  in  the  second 
case  by  the  urgency  (taking  into  account  the  resources) 
of  the  buyers. 

154.  Monopohj.—\i  there  are  many  buyers  or  sellers 
respectively,  there  is  competition;  if  there  were  only  one 
buyer  or  seller  there  would  be  an  economic  monoi)oly 
in  the  strict  sense.  For  a  private  person  to  acquire  a 
monopoly  either  of  purchase  or  sale  is  very  unusual,  hut 
it  does  occur  occasionally.  A  certain  celebrated  inter- 
national banking  house  is  understood  to  have  a  complete 
monopoly  of  the  supply  of  mercury   throughout  the 


C0.MPETITION    AND    MONOPOLY 


137 


world.  This  monopoly  can  only  be  sustained  by  this 
hoiisf  by  tht  immediate  purchase  of  (|uicksilver  mints 
wherever  these  are  reported  to  have  been  found,  to- 
jfctlier  with  the  constant  employment  of  e.\|)erts  in 
prospecting  for  ([uicksilver.  This  is  probably  tlie  only 
instance  of  a  complete  and  absolute  monopoly. 

1.53.  M<  nopolji  mces, — In  the  event  of  a  private  per- 
son procuring  by  any  means  a  complete  monopoly  he 
might  fix  any  price  for  the  commodity  he  pleases,  pro- 
vided he  were  able  out  of  other  resources  to  defray  the 
cost  of  maintaining  the  monopoly  and  simply  wait  for 
lliat  price.  If,  however,  he  desires  to  make  his  monopoly 
remunerative,  this  is  not  his  best  policy.  The  most  re- 
mmierative  price  for  him  is  that  price  which  will  secure 
the  largest  net  profit.  That  price  cannot  be  the  high- 
est prioe  which  he  might  secure  from  the  most  urgent 
buyer— for  in  any  market  there  are  few  urgent  buyer.s. 
It  must  be  the  price  which  will  attract  buyers  for  the 
quantity  which  will  yield  the  greatest  profit.  For  ex- 
ample, if  a  price  of  $10  per  unit  of  quantity  attracted 
liuyers  who  purchased  sufficient  to  give  at  this  price  a 
profit  of  $1,000  a  year,  and  if  a  price  of  $1  per  unit  of 
quantity  attracted  buyers  sufficient  to  produce  a  profit 
nf  .1*10,000  a  year,  clearly  it  would  be  more  advantageous 
for  tlie  monopolist  to  fix  a  price  of  $1  than  to  fix  one 
nf  $10.  It  might  be  that  as  the  result  of  experiment  he 
found  that  a  price  of  00  cents  would  yield  only  $9,000 
a  year,  and  in  the  interests  of  his  business  he  would  feel 
liimscif  justified  in  maintaining  the  price  at  $1. 

15C.  Government  monopolies. — A  more  usual  case  of 
cfjmpjete  monopoly  is  the  Government  or  legal  monop- 
oly in  which  within  the  boundaries  of  its  own  country  a 
liovernment  declares  itself  to  be  the  possessor  of  a  mo- 
nopoly of  a  service  or  of  a  manufacture  and  prosecutes 


MIOOCOPV   RESOIUTION   I6SI  CHART 

(ANSI  ond  ISO  lEST  CHART  No.  2| 


KUl^ 


A     APPLIED  IN/HGE     In 


(716)    288  -  5989  -  Foi 


158 


ECONOMICS 


any  one  who  infringes  this  monopoly.  Examples  of  the 
first  kind  of  monopoly  are  the  Post  Office  service  in  all 
countries,  and  the  telegraph,  telephone  and  railway 
service  in  some  countries  and  the  municipal  monopolies 
of  water,  gas,  electric  lighting  and  power,  and  street 
railway  services.  Examples  of  the  second  are  to  Ije 
found  in  the  tobacco  monopoly  of  Austria,  and  the  play- 
ing card  and  vodka  monopolies  of  Russia. 

Monopolies  of  public  services  and  of  manufactures 
held  by  a  Government  are  subject  to  precisely  the  same 
contingencies  as  a  non-political  and  purely  mercantile 
monopoly,  excepting  that  the  Government  may  or  may 
not  regard  the  acquisition  of  profit  from  its  monopoly 
as  sound  policy.  This  aspect  of  the  question  is  discussed 
more  fully  in  a  later  section;  for  the  purposes  of  the 
present  exposition  it  may  be  assumed  that  the  Govern- 
ment monopoly  is  worked  in  such  a  way  as  to  secure  a 
maximum  profit  for  the  Government. 

Here,  again,  it  is  clear  that  the  price  which  will  se- 
cure the  greatest  profit  is  not  the  price  which  will  he 
paid  by  the  most  urgent  buyer;  but  is  rather  the  price 
which  will  cause  the  utmost  use  of  the  monopoly  to  he 
made  by  the  largest  number  of  persons  compatible  with 
the  maintenance  of  the  service  at  the  point  of  maximum 
net  yield  of  profit. 

157.  Monopolies  subject  to  law  of  substitution.— li 
should  be  observed,  however,  that  the  law  of  substitution 
mitigates  very  seriously  the  advantages  of  all  monop- 
olies, public  and  private.  The  essence  of  the  law  of  suh- 
stitution  is  that  when  the  price  of  a  commodity  reaches 
a  certain  point,  some  other  commodity  will  be  substituted 
for  it.  In  the  case  of  mercury  this  is  very  difficult  be- 
cause for  nearly  all  the  uses  to  which  mercury  is  p\it,  no 
substitute  has  been  found.     Yet  for  some  uses,  other 


COAIPETITIO.V    AND    MONOPOLY  159 

s.,bstances  will  serve  nearly  equally  well.  Ther- 
mometers may  be  filled  with  alcohol  or  with  mereury 
almost  .ndifferently;  barometers  may  be  made  of  other 
metals  than  mereury,  although  they  are  not  quite  so  re- 
liable for  long  periods  as  mercurial  barometers.     In  the 

of  pubhc  funds  ,s  invested,  it  may  become  absolutely 
necessary  m  order  to  protect  the  original  monopoly,  to 

2T  'f ''''''''  ^°'  '^'  "''^'"^J  ^--ee  i  lorn. 
modity  as  well. 

138.  Practical  effect  of  a  typical  case.-The  most  con- 
jcuous  mstan^  of  this  is  to  be  found  in  the  history 
of  the  English  Post  Office.  When  the  first  Post  Oflic; 
Art  was  passed,  the  Postmaster-General,  under  the  ad- 

entitle  him  to  prevent  any  person  not  explicitly  author- 

Iv  "  rTJ?  ^^  ''•"  ^■■°'"  '^'^y'^^  «»y  ~ge  for 
payment.  This  sweeping  monopoly  was  very  difficult 
to  enforce  ,n  detail;  but  in  general  terms  it  was  tho  - 
oughly  enforced. 

The  railway  companies  were  forbidden  to  carry  let- 
ters unless  they  were  stamped  with  postage  stamps  in 
2  ion  to  any  charge  the  railway  companies  m^h 
make  for  carrying  them. 

shed  in  England,  the  company  was  notified  that  the 
business  It  proposed  to  conduct  was  a  violation  of  the 
!  ?  ?  monopoly.  It  was,  however,  granted  a  li- 
cense by  the  Postmaster-General. 

When  messenger  services  were  established  in  the  large 
"  .es  they  also  were  licensed.  Under  the  pressure  of 
pu  he  opinion  the  Government  acquired  the  telegraph 
^  terns  of  the  companies  which  were  conducting  the 
"usmess.     Under  the  same  pressure  the  rates  for  tele- 


160 


ECONOMICS 


grams  were  from  the  beginning  placed  it  a  point  which 
has  turned  out  to  be  hopelessly  unremunerative. 

When  the  telephone  system  made  its  appearance  the 
Postmaster-General  at  once  notified  the  promoters  that 
they  would  require  a  license  from  him  to  carry  on  their 
business.  Eventually,  in  order  to  protect  the  telegraph 
and  the  Post  OflSce  monopoly,  the  Government  was 
obliged  to  agree  to  purchase  the  telephone  system. 
When  wireless  telegraphy  made  its  appearance  again 
the  Government  interposed  and  licensed  it.  Ere  long, 
doubtless,  it  also  will  be  acquired. 

In  spite  of  all  the  force  behind  the  Government,  it  is 
with  difficulty  able  to  cope  with  the  economic  conditions 
brought  into  being  by  streams  of  new  inventions.  Even 
political  monopolies  are  thus  extremely  difficult  to  main- 
tain. 

159.  Quad-monopolies. — A  more  familiar  example  of 
mitigation  of  competition  is  effected  by  quasi-monopohcs  I 
— in  which  not  the  whole  of  the  supply  of  a  commodity 
but  a  large  part  of  the  supply  is  brought  under  the  con- 
trol of  a  group  of  persons  who  act  in  concert  or  in  co- 
partnership.    This  phenomenon,  known  widely  as  the  I 
"trust,"  will  form  the  subject  of  further  discussion  in 
another  place;  here  it  may  be  observed  that  the  limit 
to  the  action  of  monopolies  applies  also  to  quasi-monop- 
olies  whether  they  are  in  the  hands  of  "trusts"  or  not. 
The  law  of  substitution  applies  equally  to  both  as  docs 
also  the  principle  of  maximum  profit.     In  the  case  of 
the  quasi-monopoly  the  highest  price  is  not  the  most 
profitable  price;  and  there  is  also  to  be  regarded  as  an 
important  factor  in  the  determination  of  price,  the  fact 
of  the  competition  of  the  sometimes  formidable  rivals. 
160.  Monopoly  prices  excessive? — Whether  the  price 
of  a  commodity  like  mineral  oil  would  be  lower  or  higher 


CO.MI'KTITION    AND    MONOPOLY  161 

if  the  manufacture  and  distribution  were  in  the  hands 
of  a  large  number  of  competing  producers,  each  adver- 
tising his  own  product,  instead  of  being  in  the  hands  of 
a  few  powerful  companies  competing  with  one  .inother 
IS  a  question  to  which  no  decisive  answer  can  be  given 
^  Competition  between  two  large  producers  may  be  as 
effective  m  reducing  the  supply  price,  especially  when 
demand  is  doubtful  or  declining,  as  it  would  be  among 
hundreds  of  small  competitors.  Indeed,  the  fear  of 
trusts  may  be  regarded  as  being  due  rather  to  the  ag- 
gressiveness of  their  competition  than  to  the  fact  that 
they  exercise  monopolies. 

161.  The  situation  in  the  V.  ^.-The  attacks  upon 
corporations  in  the  United  States  may  perhaps  justly 
be  attributed  to  the  fundamental  individualism  of  the 
American  people.  Their  genius  seems  disposed  rather 
to  independent,  individual  action  than  to  corporate  or 
even  co-operative  action.  It  seems  to  have  been  so  from 
an  early  period.  The  intense  local  patriotism  of  the 
several  States  rendered  the  Union  hard  to  accomplish 
and  after  it  was  accomplished  it  seemed  likely  at  one 
moment  to  break  it  up. 

Industrially  the  earlier  American  enterprises  were  fur- 
nished with  capital  frc  iroad,  and.  eager  as  the  peo- 
ple seemed  to  be  for  loa...  of  money  to  exploit  the  re- 
sources of  the  country,  they  could  not  avoid  dislike  of 
their  creditors.  Capital  in  general  thus  bore  a  foreign 
aspect,  and  the  relations  between  the  representative  cap- 
italists and  the  small  merchantry  were  strained  from  the 
beginning.  The  struggle  between  the  large  capitalist 
and  the  small  one  really  began  in  the  United  States  in 
the  thirties  of  the  nineteenth  century;  that  struggle  long 
ante-dated  the  appearance  of  the  trusts. 
It  is  not  a  little  remarkable  that  the  co-operative  move- 

C-I— II 


162 


ECONOMICS 


mcnt  which  has  taken  sucl;  a  hold  of  Western  Europe  lias 
obtained  a  very  slender  footing  in  the  United  States 
and  even  in  Canada.  While  undoubtedly  the  people  uf 
both  countries  have  developed  a  remarkable  power  of 
common  activity — that  is,  of  spontaneous  organizutioii 
toward  common  ends — they  appear  to  be  averse  to  Ibr- 
mal  association  of  this  kind.  They  seem  to  think  that 
every  man  should  have  the  opportunity  to  make  the  lust 
of  ins  powers,  by  combined  or  by  individual  action  as  lie 
sees  fit,  and  that  formal  combinations  militate  against 
this  f.'eedom  of  action.  The  Americun  maxim,  "(Jive 
every  man  a  chance,"  expresses  antagonism  to  those  com- 
binations whose  operations  appear  to  tend  toward 
diminution  of  such  chances. 

162.  Land  monopoly. — An  important  case  of  allejied 
monopoly  to  which  the  above  considerations  apply  is  the 
ownership  of  land.  Although  it  is  true  that  a  pcrsrai 
who  possesses  a  particular  piece  of  land  to  the  exclusiiin 
of  everyone  else,  possesses  a  monopoly,  the  same  is  true 
of  the  possession  of  any  commodity  similarly  cf/ninici- 
cialized.  We  have  seen  that  the  commercialization  of 
land  or  the  imparting  to  land  of  the  mobility  as  regards 
pc  session,  which  is  characteristic  of  other  forms  of  prop- 
erty, succeeded  earlier  kinds  of  land  tenure.  These 
earlic"  '  ^nures  fell  into  decay  or  were  abolished  because 
of  the  decay  and  abolition  of  serfdom,  because  of  the 
:carcity  of  agricultural  capital  and  because  of  the  diffi- 
■  ilty  of  procuring  free,  hired  agricultural  labor.  When 
°nse  areas  of  land  were  held  by  the  State  and 
ited  to  military  chiefs  or  to  other  influential  jjersons, 
land  was  neither  bought  nor  sold  and  was  held  as 
a,  i.ionopoly. 

Commercialization  of  land  altered  this  and,  so  to  say, 
placed  land  at  the  disposal  of  the  highest  bidder.    The 


COMrKTITIO.V    AND    MON'OPOI.Y  103 

alteration  of  the  laws  of  inlieritance  an.l  the  a.loption 
of  the  practice  of  paying  for  senices  to  tlic  State  by 
means  of  money  instead  of  by  mer  .s  of  grants  of  land, 
have  together  brought  about  the  commercialization  of 
land. 

It  is  true  that  this  fact  does  not  prevent  land  from 
being  monopolized;  but  ^  here  all  land  owning  is  com- 
merciahzed,  there  is  nothii.g  so  hard  to  monopolize  as 
and  because  there  is  so  much  of  it.  The  owners  of  dif- 
ferent areas  of  land  compete  «ith  one  another  in  the 
market  for  land  as  the  owners  of  goods  compete  in  the 
markets  for  goods.  Real  estate  dealers  advertise  their 
own  lots  m  western  towns  in  the  same  way  as  manufac- 
urers  advertise  their  wares,  and  they  employ  similar 
evces  m  displaying  the  advantages  of  what  they  have 
lo  sell.  •' 

163.  Fluctuation  of  land  prices.-In  all  countries  the 
history  of  the  prices  of  land  has  shown  that  the  price  of 
land  is  subject  to  great  fluctuation. 

in  ITT,  \T  u""^  ?''"  *^  P'"'^^  °^  agricultural  land 
■n  England  fell  sharply.  Many  farms  in  the  chief  agri- 
cultura  counties  were  let  at  "peppercorn"  rents-that 
|s,  for  the  mere  payment  of  taxes  upon  them.  Urban 
ands  advanced  between  about  1874  and  1876,  but  since 
that  period  the  prices  have  not  advanced  materially  ex- 
cepting in  the  business  centers  of  the  towns 
In  the  United  States  and  Canada,  similar'fluctuation.s 

s  a  as  led  to  the  abandonment  of  farms  in  the  eastern 
tates  as  the  attraction  of  the  prairie  provinces  has  led 
toniral  depopulation  and  the  fall  in  the  price  of  land 
in  Ontario. 

Booms  and  subsequent  collapses  are  familiar  incidents 
in  the  cities  of  both  countries.     The  acquisition  oi  farm 


164 


ECONOMICS 


lands  at  the  normal  prices  for  such  lands  and  the  build- 
ing of  a  hotel  by  a  shrewd  and  enterprising  speculatDr 
who  skillfully  engineers  it  into  the  position  of  a  fashion- 
able resort,  will  induce  demand  for  land  in  the  neighbor- 
hood and  will  therefore  increase  its  price.  The  stream 
of  fashion  may  make  the  surrounding  country  very  val- 
uable to  the  owners  of  land,  until  caprice  or  intertst 
turns  the  stream  in  another  direction.  In  former  days 
people  went  to  Saratoga  for  recreation ;  now  they  go  to 
Virginia  Hot  Springs,  Atlantic  City,  Bar  Harbor  or_ 
Newport,  Rhode  Island. 

Round  every  growing  city  new  residential  districts 
tend  to  develop,  and  these  compete  with  one  aiiotlicr 
more  or  less  vigorously.  The  difference  between  the 
price  of  farm  lands  and  urbanized  land  is  represented 
by  the  cost  of  organizing  it  for  its  new  use  by  draitiai;e. 
by  setting  off  allowances  for  streets,  by  advertisinif  it. 
by  interest  upon  the  investment,  and  by  the  cost  of  ad- 
ministration. The  result  of  these  operations  may  be  the 
sale  of  the  land  at  a  profit  or,  in  the  absence  of  demand 
owing  to  miscalculation  or  misfortune,  the  whole  region 
may  relapse  into  agricultural  land  or  remain  idle  for 
years. 

164.  Competition  in  land  selling. — Continuance  of 
rapid  growth  of  large  towns  cannot  be  counted  upon. 
It  is  true  that  land  acquires  a  value  through  demand 
in  other  words,  through  the  settlement  of  a  community 
upon  it ;  but  if  the  community  does  not  settle  or  if  it 
leaves  the  place  of  its  settlement,  demand  and  value 
alike  decline.  Much  of  the  so-called  site  value  of  urban 
property  is  peculiarly  liable  to  fluctuation  owing  to  the 
caprice  of  demand.  And  at  a  street  corner,  whieh  ap- 
pears to  offer  a  strategic  point  for  the  conduct  of  a  i)ar- 
ticular  business — a  bank,  a  railway  ticket  office  or  the 


COMPETITION-    AND    .MONOPOLY  1C5 

like— clianges  hands  at  a  price  greatly  in  exeess  of  the 
|)rice  of  another  part  of  the  same  block.  Such  a  transac- 
tion is  not  due  to  monopoly  but  is  due  to  effective  de- 
mand of  a  sjx-cial  cliaracter.  Cases  frequently  occur  of 
mvners  of  an  advantageous  site  of  this  kind  holding  on 
t(Hj  long  and  thus  missing  the  market. 

Cities  and  even  countries  compete  against  one  another 
in  the  land  market.  Thus  if  a  manufacturing  firm,  de- 
siring to  establish  itself  in  Buffalo  or  Toronto,  found 
that  land  was  being  held  in  both  places  at  what  was 
regarded  by  its  advisers  as  an  exorbitant  price,  it  might 
Ik  advantageous  to  purchase  land  elsewhere— at  Toledo 
nrat  Hamilton— where  land  could  be  had  more  cheaply. 
provided  the  business  could  be  carried  on  with  equal  ad- 
vantage in  the  smaller  city. 

Cases  frequently  occur  in  which  it  is  a  matter  of  in- 
ilifference  to  the  promoters  whether  an  industry  is  es- 
tablished in  the  United  States  or  in  Canada.  In  such 
cases  the  local  factors  play  a  large  part— facilities  for 
obtammg  labor  and  material  and  the  cost  of  the  land. 
If,  oth  r  things  being  equal,  a  suitable  site  could  be  ob- 
tained at  a  less  price  in  Canada  than  in  the  United  States, 
tiie  industry  would  be  established  there.  On  the  fron- 
tiers of  the  countries  in  Central  Europe  similar  condi- 
tions prevail.  A  local  land  "monopolist"  who  insists 
upon  exorbitant  prices  is  a  kind  of  scarecrow,  frighten- 
ing people  away  from  his  land  and  making  nothing  of  it 
1)  nself. 

165.  Rates  of  interest  affect  land  prices.—TheTe  is  a 
definite  connection  between  the  demand  price  for  land 
and  tlie  rate  of  interest  for  money.  When  money  is 
scarce  and  the  rate  of  interest  is  high,  the  demand  for 
land  IS  slender  because  the  speculative  element  is  limited 
or  eliminated.    When  the  rate  of  interest  on  loans  upon 


in 


100 


ECONOMICS 


the  security  of  land  rises,  some  holders  of  land  must  sell, 
if  they  can,  and  others,  who  would  otherwise  have  hoiiglit. 
will  refrain  from  l)uyinp  unless  for  purposes  of  tlieir 
business  they  are  oliliged  to  buy. 

So,  also,  when  the  rate  of  interest  falls,  the  price  nf 
land  where  property  in  land  is  mobile  tends  to  rist 
The  phenomenon  of  an  advance  in  the  price  of  land  ciin- 
sequent  upon  a  fall  in  the  rate  of  interest  has  been  il- 
lustrated on  a  large  scale  in  Egypt.  Prior  to  the  Brit- 
ish ocaipation  the  rate  of  interest  was  very  high,  most 
usurious  rates  being  customarily  exrcted,  with  the  bas- 
tinado as  a  penalty  if  the  amounts  due  were  not  jjaiii. 
Under  the  Egyptian  regime,  the  price  of  land  was  low. 
partly  owing  to  the  instability  of  the  government,  but 
more  largely  owing  to  the  high  rate  of  interest  wiiidi 
deterred  borrowing  for  the  purpose  of  purchasing  luiul, 
and  which  it.duced  the  owners  of  capital  to  refrain  from 
lending  for  long  periods.  The  International  Tribunals 
and,  later,  the  Egyptian  courts  of  law,  supervised  as 
the  latter  were  by  the  British  Government  in  Egypt,  put 
and  end  to  the  bastinado  and  to  usury.  The  rate  of  inter- 
est fell  to  normal  amounts  because  abnormal  rates  could 
not  be  recovered  and  therefore  would  not  be  paid. 

One  of  the  immediate  consequences  of  the  fall  in  the 
rate  of  interest  and  of  the  increased  stability  of  the 
government  was  an  increase  in  the  demand  for  land  and 
a  rapid  increase  in  the  price.  There  was  a  furore  of  land 
speculation  in  Cairo;  but  a  more  important  iiicidint 
was  the  increase  in  the  value  of  agricultural  land  coupled 
with  its  increased  productivity  owing  to  the  control  of 
the  Nile  waters  by  means  of  the  great  engineering; 
works  erected  by  the  British  Government.  The  position 
of  the  land-owning  fellahin  was  greatly  improved:  but 
the  position  of  the  landless  fellahin  was  not  so  ob\  iouslv 


CO.MPETITIOX    AND    MONOPOLY  107 

altered.  He  found  that  tlic  prio  f  money  Imd  fnlltn, 
but  the  price  of  lund  had  risen  to  a  greater  extent.  His 
annual  payment  on  account  of  interest  upon  capfi!  in- 
«'ste(J  in  an  acre  of  land  had  therefore  increased.  The 
greater  prmluctivity  of  the  land  enabled  him  more  eas- 
ily to  meet  the  additional  charge  than  he  would  other- 
wise have  been  able  to  do,  but  there  was  little  if  any  net 
liecuniary  advantage. 

The  extensive  speculation  in  land  by  farmers  in  the 
northwest  of  Canada  has  been  due  to  the  facilities  for 
borrowing  which  the  farmers  have  enjoyed,  ant'  to  the 
relatively  low  rates  of  interest  at  which  they  could  bor- 
row. This  condition  led  to  npid  advance  in  the  price 
of  land  so  long  as  effective  demund  was  sustained.  With 
the  rise  in  the  rate  of  interest  the  increase  in  the  price 
of  land  was  checked.  In  the  event  of  interest  advancing 
still  further,  the  price  of  land  must  fall. 

The  price  of  land,  like  the  price  of  commodities,  thus 
depends  upon  a  series  of  complex  causes  acting  through 
demand  and  supply. 

166.  Changes  in  geographical  relations.— The  great 
trade  routes  of  "unchanging  Asia"  have  retained  their 
importance  for  many  centuries,  many  of  them  retaining 
even  their  primitive  character.  Long  lines  of  camels 
may  be  seen  carrying  merchandise  from  Peking  through 
the  Nankow  pass  and  by  Kalgan  on  the  out  r  Great 
Wall  of  China  into  Jlongolia  for  the  Wongol  traders, 
as  Marco  Polo  saw  them  nearly  seven  centuries  ago. 
Similar  lines  of  camels  may  also  be  seen  in  the  Trans- 
caspian  region,  competing  with  the  railways  for  distances 
of  a  thousand  miles. 

The  trade  routes  of  European  traders  have,  however, 
altered  many  times,  and  alterations  have  sometimes  im- 
posed immense  sacrifices.     In  the  prime  of  Venice  her 


108 


ECONOMiCS 


traders  conducted  a  Inrjjc  part  of  the  traffic  b<  twtin 
I'lrsin,  India  and  Kiiropc  tliroiifjh  Asia  Minor.  The 
discovery  of  the  Ca|K;  Itoiite  to  India  diverted  the  ma.jnr 
portion  of  \'tneiian  trade  to  Lislwn  and  Lon<Ion,  wliilc 
Cape  Town  Iwcanic  an  important  stratej^ic  point.  The 
ojjening  of  the  Suez  Canal  did  not  revive  Venice,  hut 
it  gave  a  new  strategic  importance  both  in  a  mercantilt 
and  in  a  mihtary  sense  to  Egypt  and  to  Gibraltar.  Al- 
tliough  France  built  the  Suez  Canal,  Cireat  Britain 
profited  by  it  to  the  greatest  extent.  Her  hold  on  India 
was  strengthened  and  her  trade  with  that  country,  with 
China  and  with  Australia  and  New  Zealand  was  greatly 
facilitated. 

The  whole  range  of  prices  of  the  products  of  these 
countries  and  of  the  goods  consumed  by  them  was  al- 
tered. Trade  which  was  formerly  periodical  became 
continuous.  The  voyages  no  longer  depended  upon  tiie 
monsoons.  The  increasing  velocity  of  the  returns  to 
capital,  which  the  shorter  route  rendered  possible,  en- 
abled larger  and  more  powerful  vessels  to  be  employed. 
There  was  a  more  eager  competition  for  an  enhanced 
trade  and  freights  were  reduced  in  consequence. 

The  effects  upon  prices  extended  not  merely  to  tiicir 
amount,  but  extended  also  to  their  fluctuations.  An  in- 
crease of  the  demand  in  the  Bazaars  of  India,  for  ex- 
ample, could  not  under  the  former  conditions  be  felt  in 
Europe  for  months.  After  the  opening  of  the  Suez 
Canal  and  the  establishment  of  numerous  lines  of  fast 
steamers  between  Europe  and  Bombay,  goods  might  be 
ordered  from  India  and  delivered  within  about  one 
month.     The  whole  fabric  of  Eastern  trade  was  altered. 

Scarcely  less  significant  was  the  rounding  of  Cape 
Horn  and  the  development  of  European  trade  on  the 
Pacif    slope  of  South  America.     The  opening  of  the 


rOMPKTITION    AM)    .MONOI'OLV  |o» 

Paimnin  Canal  is  <frtain  to  produce  complicatccj  rcac- 
tiiiiw.  Much  of  the  external,  and  perhaps  sonic  of  the 
liiUrnal.  trade  of  tlic  United  States  must  \k  affected  liy 
It.  Its  influence  upon  the  price  of  grain  in  Kurope. 
iiwiMK  to  the  diminution  of  freight  rates  Iwtween  Cali- 
fiiriiia,  British  Cohimhia  and  Europe,  may  result  in  the 
rntrance  into  the  European  competitive  market  of  grain 
which  at  present  cannot  be  shippeil  there.  If  this  occurs 
the  price  should  be  less  than  otherwise  it  wor..  1  have 
been. 


^^0|t.^^i 

CHAPTER    VII 


MONEY   AND    CREDIT    IN    RELATION    TO    PRICES 


167.  Expandon  and  contraction  of  credit. — When 
for  any  reason  credit  expands,  more  capital  is  availalile 
for  industrial  purposes,  more  pe  /pie  are  employed,  more 
wages  are  paid.  Consequently,  demand  for  conmiodities 
increases  and  prices  tend  to  advance.  When  for  any 
reason  credit  contracts,  people  refrain  from  making  pur- 
chases except  for  immediate  needs,  loans  are  recalled 
and  stocks  of  goods  have  to  be  thrown  upon  the  marktt. 
The  visible  supply  of  goods  is  thus  suddenly  increased 
at  a  moment  when  demand  is  contracted.  The  conse- 
quence of  these  conditions  is  a  fall  in  prices  more  or  less 
widespread  in  proportion  to  the  suddenness,  severity  and 
duration  of  the  crisis. 

Contraction  of  credit  may  occur  through  anticipation 
on  the  part  of  the  lending  and  investing  classes  of  a 
deficient  liarvest  or  of  a  war,  or  it  may  occur  because  in 
the  opinion  of  such  classes  speculation  has  forced  prices 
above  the  point  at  which  there  can  be  sustained  demand: 
or  credit  may  be  contracted  merely  because  it  is  more 
profitable  under  th'  existing  conditions  of  the  money 
market  to  hold  highly  liquid  rather  than  less  easily 
realizable  securities.  Expansion  of  credit  occurs  wlien 
the  process  of  contraction  has  obviously  gone  too  far. 
when  unemployed  funds  accumulate  in  the  hands  of  in- 
vestors and  when  their  incomes  fall  in  consequence. 
When  credit  contracts,  people  begin  to  hoard  money. 
and  they  let  it  pass  out  of  their  hands  again  as  the  rate 
170 


RELATION    TO    PRICES  m 

of  interest  for  urgently  demanded  funds  gradually  ad- 
vances. 

Hi8.  Effect  of  qiiantitij  of  monei/  in  circulation  —The 
role  of  money  in  the  process  of  exchange  and  the  position 
accjuired  by  the  precious  metals  in  the  category  of  money 
have  already  been  discussed.     The  demand  for  money 
for  purposes  of  exchange  and  the  demand  for  precious 
metals  is  as  real  a  demand  as  that  for  any  commodity 
m  the  category  of  commodities.     Some  gold  and  silver 
are  demanded  for  various  purposes  in  tlie  industrial  and 
hne  arts-photography,  dentistry,  jewelry,  medals  and 
the  hke— and  some  for  tlie  manufacture  of  coins,  either 
immediately  or  potentially.     If  all  transactions  were 
settled  by  means  of  cash  payment  in  coins,  it  would  be 
clear  that  the  larger  the  volume  of  trade-given  a  cer- 
tain rate  of  movement  of  that  volume— the   greater 
amount  of  coins  would  be  necessary  for  the  movement 
of  trade.     When  the  conditions  are  as  assumed,  and 
here  occurs  a  shortage  of  currency,  trade  is  impeded 
from  that  mere  fact  because  exchange  is  rendered  less 
easy.     In  so  far  as  the  actual  conditions  approximate 
0  the  conditions  described,  it  comes  to  be  very  impor- 
tant that  there  should  be  sufficient  currency  on  any  given 
occasion  to  enable  the  required  payments  to  be  made. 

169.  Periodical  payments.— In  Scotland  rents  of 
buses  and  of  some  lands  are  customarily  paid  at  the 
J>o half-yearly  terms  of  Whitsunday  (June)  and  Mar- 
tamas  November)  It  is  usu.^l  for  the  Scottish  banks 
0  withdraw  from  London,  immediately  prio-  to  these 
term  days,  not  less  than  from  $10,000,000  to  $15,000  000 
mgoldin  order  to  provide  the  currency  necessary' for 

leipated  payments.     The  gold  is  used  in  circulation 

J  to  a  small  extent;  it  serves  chiefly  as  the  basis  for 
"e  issue  of  the  bank  notes  which  are  employed  for  the 


n 

1 


-1 


172 


ECONOMICS 


payment  of  rents.  When  these  notes  return  to  the 
banks,  as  they  do  in  the  form  of  deposits  within  a  fen- 
days  after  the  term  day,  they  are  cancelled  and  the  gold 
is  returned  to  London. 

Every  week,  or  every  fortnight,  according  to  the  cus- 
tom of  wage  payments,  large  industrial  concerns  every- 
where withdraw  from  the  banks  coins  and  bills  wliioh 
are  payable  in  coin  on  demand,  for  the  purpose  of  pay- 
ing wages.  The  vse  of  checks  or  drafts  on  demand 
upon  the  banks  has  been  widely  extended  of  recent  years; 
but  unless  the  person  to  whom  the  check  is  given  keeps 
his  account  at  the  same  bank  as  the  drawer  of  the  check, 
the  settlement  between  the  banks  concerned  takes  place 
instead  of  between  the  drawer  of  the  check  and  the  per 
son  to  whom  the  check  is  payable.  In  such  a  settlement 
there  are  claims  and  counter  claims  which  are  customarily 
set  oflF  against  one  another  in  the  clearing  houses,  but 
the  balance,  whatever  it  is,  is  customarily  paid  in  cash  by 
the  debtor  bank  to  the  creditor  bank. 

170.  Settlement  of  bank  balances. — Thus,  no  matter 
to  what  extent  instruments  of  credit  are  employed  to 
faciUtate  exchange,  there  are  certain  large  balances 
which  must  be  paid  in  cash.  Such  balances  between 
banks  niaj'  be,  and  customarily  are,  settled  by  means 
of  the  transference  of  instruments  of  credit  in  which  the 
holder  of  funds  common  to  all  the  banks  is  concerneil 
or  in  instruments  of  credit  issued  by  the  Government 
in  return  for  previous  payments  in  coin  or  its  equivalent. 

In  Candida,  "legal  tenders"  for  $1,000  each  are  cus- 
tomarily used  by  the  banks  in  this  way,  fractions  of  this 
amount  being  paid  by  checks  on  the  Bank  of  Montreal 
against  deposits  previously  made  in  that  institution.  I" 
London  the  clearing  house  balances  are  settled  by  cliecks 
upon  the  Bank  of  England,  where  all  bankers  who  use 


RELATION    TO    PRICES 


173 


the  clearing  house  have  accounts.  In  New  York  and 
elsewhere  the  process  is  similar,  the  clearing  house  settle- 
ments being  made  in  actual  cash  or  in  some  highly  ap- 
proved and  immediately  negotiable  instrument  of  credit. 

in.  Gold  required  for  internatiorud  trade.— The  in- 
ternal trade  of  a  country  always  greatly  exceeds  its  ex- 
ternal trade  and  therefore  the  amount  of  currency  v  hich 
is  required  within  the  country  is  always  much  greater 
than  the  amount  required  for  the  conduct  of  its  export 
or  import  business.  Yet  the  latter  amount  in  the  case 
of  each  of  the  great  commercial  nations  is  very  large. 

In  international  trade,  instruments  of  credit  are  used 
largely,  but,  notwithstanding  the  economy  in  circulation 
which  the  use  of  these  documents  implies,  there  remain 
large  balances  which  cannot  be  settled  otherwise  than 
by  the  transference  of  gold.  When  credits  in  favor  of 
the  United  States  and  Canada  accumulate  in  the  autumn 
after  grain  shipments  have  begun,  there  begins  as  a  rule 
(although  not  invariably,  see  page  174)  what  is  known 
as  the  "autumnal  drain"  of  gold  to  America  from  Eu- 
rope. The  amount  of  the  gold  shipped  varies  in  respect 
to  the  grain  shipments,  and  also  in  respect  to  other 
simultaneous  debits  and  credits,  but  it  is  usually  a  factor 
of  considerable  moment. 

If  we  were  to  suppose  that  so  much  as  ninety-eight 
per  cent  of  the  aggregate  amounts  involved  in  all  trans- 
actions, domestic  and  foreign,  of  the  great  trading  na- 
tions, are  settled  by  the  transference  of  credits  through 
the  use  of  credit  instruments  (and  this  proportion  is 
probably  not  far  from  the  actual  conditions  in  certain 
of  these  countries),  we  should  still  have  to  suppose  that 
two  per  cent  of  tiic  enormous  total  would  demand  gold 
or  silver  for  settlement.  It  is  clear  then  that  the  greater 
the  volume  of  business  and  the  greater  the  number  of 


174 


ECOXOJIICS 


transactions,  the  larger  the  amount  of  gold  and  silver 
which  will  be  necessary  in  order  to  conduct  them  within 
a  given  time. 

While  it  is  true  that  coin  is  economized  to  a  greater 
extent  than  ever  it  was,  it  is  true,  also,  that  capital  is 
transferred  with  greater  velocity  than  ever  it  was.  If, 
for  instance,  a  wholesale  trading  house  turned  over  its 
capital  once  a  year  in  a  given  number  of  transactions, 
and  owing  to  increased  trade  at  another  period  turns 
over  its  capital  twice  a  year  in  twice  the  number  of 
transactions,  it  is  clear  that  currency  facilities  of  one 
sort  or  another  will  be  necessary  to  an  extent  at  least 
approaching  twice  the  amount  formerly  necessary. 

172.  Money  in  circulation  affects  prices  through 
crcrfiY.— Notwithstanding  the  influence  of  citdit,  it  is 
clear,  therefore,  that  the  quantity  of  the  precio\is  metals 
in  circulation  as  money  is  not  a  negligible  factor.  Tiie 
influence  upon  prices  of  an  increase  or  a  diminution  of 
the  amount  in  circulation  is,  however,  neither  immediate 
nor  direct.  The  influence  is  indeed  conveyed  through 
credit.  When  the  banking  reserves  are  re-enforced  by 
receipts  of  gold,  credit  expands,  and  when  they  are  de- 
pleted by  withdrawals  of  gold,  credit  contracts.  Tlie 
expansion  of  credit  induces  increase  of  demand  and  in- 
crease of  demand  induces  advance  of  prices,  while  con- 
traction diminishes  demand  and  induces  fall  in  prices. 
In  this  indirect  way  an  increase  in  the  quantity  of  the 
precious  metals  available  for  use  as  money  induces  an  in- 
crease of  prices  within  the  area  which  is  affected  by  the 
expansion  of  credit  and  a  diminution  of  that  quantity 
has  an  opposite  effect. 

The  "autumnal  drain"  of  gold  from  Europe  produces, 
other  things  being  equal,  a  restriction  of  credit  there 
and  the  receipt  of  the  gold  in  America  produces,  other 


RELATION    TO    PRICES 


175 


an  expansion   of  credit  on   this 


things  being  equal, 

side. 

There  are  numerous  historical  examples  of  the  effect 
upon  prices  of  considerable  increases  in  the  supply  of 
gold.  For  example,  after  the  new  supplies  of  gold 
froni  California  and  Australia  in  1849-18.51  began  to 
reach  Europe,  credit  expanded,  and  prices  rose  accord- 
ingly. Similar  results  were  brought  about  when,  after 
886,  the  yield  from  the  South  African  mines  was  great- 
ly increased,  owing  to  improvements  in  the  process  of 
reducing  the  ore,  and  new  gold  in  great  quantities  began 
0  pour  into  Europe.  The  resenes  of  the  European 
banks  were  substantially  increased,  especially  those  of 
the  Bank  of  France  and  the  Bank  of  Eng'  ,„d. 

The  accumulation  of  banking  reserves  caused  the  rate 
0  interest  to  fall,  industry  was  thus  stimulated  and  the 
long  depression"  which  had  lasted  from  1876  passed 
away.     The  stimulus  to  industry  through  the  fall  in  the 
rate  of  interest  which  was  the  consequence  of  the  in- 
creased supplies  of  gold  and  the  replenishment  of  the 
banking  reserves  which  these  new  supplies  provided,  led 
to  increased  <I  mand  for  which  the  increased  credits  af- 
forded effective  resources.     Prices  rose  sharply  from 
the  low  points  to  which  they  had  fallen  during  the  "lonjr 
depression. '     It  should  be  observed  that  only  those 
prices  which  applied  to  goods  the  demand  for  which  was 
increased  by  the  relaxation  of  credit,  were,  strictly  speak- 
mg,  advanced  in  consequence  of  that  relaxation  which. 
m  turn,  was  due  to  the  increase  of  the  gold  reserves. 

ishn!  .  f/""''  "^  '^^^--The  process  of  the  replen- 
ishment of  European  currency  by  large  new  supplies  of 
gold  was  arrested  by  the  outbreak  of  the  South  African 
«ar.  For  three  years  the  mines  produced  nothing, 
"hen  operations  were  resumed  the  stream  of  gold  con- 


176 


ECONOMICS 


tinued.  New  sources  of  demand  had  meanwhile  devel- 
oped. Russia,  Austria  and  Italy  had  already  begun  to 
rehabilitate  their  public  credit  by  the  increase  of  <;ol(l 
reserves  against  their  fiduciary  currency.  Their  im- 
portations of  gold,  arrested  by  the  South  African  war. 
were  now  resumed  to  a  greater  extent  than  formerly. 
Exportation  of  goods  was  encouraged  and  importation 
checked  by  heavy  duties.  Immense  exportation  of  wlieat 
enabled  Russia  not  only  to  rehabilitate  wholly  her  de- 
preciated ruble,  but  enabled  her  to  accumulate  an  enor- 
mously greater  stock  of  gold  than  was  necessary  for  that 
purpose.  The  United  States  Government  also  adopted 
the  policy  of  storing  gold. 

In  consequence  of  these  large  operations,  notwith- 
standing the  greatly  increased  production,  a  scarcity  of 
gold  in  relation  to  the  currency  requirements  of  a  greatly 
increased  volume  of  trade  began  to  appear  within  the 
range  of  probability. 

Then,  as  nearly  always  under  similar  conditions,  the 
hoarding  of  gold  became  a  considerable  factor.  Such 
hoarding  always  goes  on  especially  in  Mohammedan 
countries;  and,  when  those  countries  enjoy  prosperity  in 
trade,  and  when  it  appears  that  gold  is  difficult  to  get, 
scarcity  is  regarded  as  imminent,  goods  are  sold  and 
gold  is  secreted,  only  to  be  brought  out  again  when 
prices  have  fallen  further  and  purchases  may  be  made 
with  advantage.  Hoarding  thus  went  on  sharply 
India  and  Egypt.  Public  and  private  hoarding,  to- 
gether with  the  increasmg  demands  of  credit  for  com 
mercial  and  for  speculative  purposes,  thus  led  to  the 
crisis  of  1907,  which  was  partly  a  credit  and  partly  a 
currency  crisis. 

174.  Fiduciary  currency. — The  term  fiduciary  cur- 
rency is  applied  to  currency  whose  acceptanc :  as  money 


RELATION    TO    PRICES  I77 

depends  not  upon  the  material  of  which  it  is  made  but 
upon  the  credit  of  the  issuer— in  other  words,  upon  be- 
lief m  the  reliability  of  the  promise  to  pay  at  a  certain 
place  on  demand  or  at  a  certain  date  a  si)ecific  amount  in 
a  certain  currency  material  or  its  equivalent.  The  brass 
tokens  which  the  Hb  Ison  Bay  Company  issued  were 
redeemable  by  the  company  in  goods  equivalent  to  one- 
quarter,  one-half  or  one  whole  standard  beaver  skin. 
These  brass  *okens  were  fiduciary  currency  because  their 
acceptability  was  determined  by  the  faith  that  the  com- 
pany would  keep  its  engagements. 

At  the  present  moment  Chinese  barbers  issue  small 
bamboo  sticks  which  entitle  the  bearer  to  their  services. 
These  sticks  are  sold  and  used  because  the  single  service 
of  a  barber  is  valued  at  a  rate  lower  than  the  smallest 
com  m  circulation— the  "cash"— represents.  Several  of 
the  sticks  are  sold  for  one  "cash."  There  is  here  also  an 
element  of  trust  in  the  good  faith  of  the  barber. 

i ,  5.  Paper  Wioney.- Fiduciary  currency,  usually,  al- 
though not  invariably,  consists  of  a  document  of  piper 
or  parchment  upon  which  is  written  or  printed  the  prom- 
ise to  pay.  Such  notes  or  bills  have  been  employed 
since  very  early  times.  Ancient  Chinese  notes  or  bills 
of  this  kind  are  still  extant. 

It  is  clear  that  the  reliability  of  the  issuer  of  such  docu- 
ments must  be  subjected  to  repeated  tests.  So  long  as 
the  tests  are  satisfactorily  passed,  the  credit  instruments 
will  continue  to  circulate  at  their  face  value.  If  doubt 
IS  cast  upon  the  reliability  of  the  issuer,  his  issues  may 
still  pass  current;  but  they  will  do  so  at  a  discount.  If 
fresh  issues  are  made  while  the  issuer  is  still  in  default 
m  respect  to  previous  issues,  the  discount  increases  and 
eventually  the  issues  become  non-negotiable  on  any 
terms. 

C-l—lt 


178 


ECONOMICS 


176.  An  hypothetical  case. — If  we  suppose  a  countrj' 
to  be  a  closed  economic  system,  that  is,  a  system  which 
has  no  contact  with  the  external  world,  the  issue  of  Gov- 
ernment notes  in  such  a  country  without  any  power  of 
redemption  would  be  possible  provided  the  people  bad 
confidence  in  the  stability  of  the  Government.  If,  how- 
ever, they  feared  the  displacement  of  the  Government 
and  the  repudiation  by  its  successor  of  the  obligations 
it  incurred,  the  irredeemable  paper  of  the  Government 
would  not  be  accepted  even  by  its  own  subjects,  and  the 
Government  would  be  unable  to  ijsue  a  forced  loan  in 
the  form  of  irredeemable  Government  notes.  If,  how- 
ever, confidence  in  the  Government  was  such  that  the 
people  supported  a  policy  of  this  kind,  and  accepted 
Government  paper  instead  of  cash  while  the  Government 
justified  itself  on  the  ground  of  national  exigency,  the 
paper  would  pass  into  circulation,  but  for  doiiiestic  j)ur- 
poses  only. 

In  such  a  case  where  such  a  policy  is  adopted  there 
cannot  be  any  doubt  about  the  reactions  which  will 
take  place.  History  affords  numerous  examples  (no- 
tably the  situation  in  the  United  States  during  tlie 
Civil  War  when  forced  currency  was  put  in  circulation 
as  a  desperate  financial  expedient) .  There  would  speed- 
ily develop  in  the  market  two  prices — one  price  for 
payment  in  cash  and  the  other  and  higher  price  for  pay- 
ment in  Government  paper. 

Gradually  cash  would  disappear.  It  would  be 
hoarded  because  of  its  increased  and  probably  increas- 
ing value  (on  the  terms  of  the  hypothesis  it  would  re- 
1  ;ain  in  the  country,  but  if  the  circle  were  not  closed  it 
would  for  the  most  part  leave  it)  and  paper  alone  would 
remain  in  circulation.  It  would  be  necessary  to  increase 
the  issue  of  paper  because  of  the  disappearance  of  the 


IlELATION    TO    PRICES 


170 


cash  which  had  formerly  been  current  and  because  the 
increase  in  paper  prices  caused  an  increased  demand  for 
the  paper  for  purposes  of  interchange.  Such  paper 
could  easily  be  printed  and  issued  and  the  phenomenon 
of  o'.erissue  would  be  manifest. 

Tile  rapid  rise  of  pajjcr  prices  would  disturb  all  exist- 
iiijr  contracts,  j)eople  with  fixed  incomes  would  be  re- 
duced to  poverty  and  unless  wages  were  advanced 
immediately  upon  every  advance  in  the  prices  of  the 
necessaries  of  life,  industry  would  be  dislocated,  and  the 
ivhole  economic  system  thrown  out  of  gear.     Return  to 

condition  of  equilibrium  would  be  slow,  and  would  in- 
volve great  sacrifices.  The  foundation  of  man/  great 
.\merican  fortunes  was  laid  in  the  period  of  reconstruc- 
tion after  the  war,  but  the  personal  sacrifices  of  the  mass 
of  the  people  were  tremendous. 

177.  Fiduciary  currency  in  international  trade. — If, 
instead  of  a  closed  economic  system,  we  suppose  one 
ivhich  forms  a  part  of  the  system  of  international  ex- 
change, we  shall  see  at  once  that  an  irredeemable  Gov- 
ernment currency  is  impossible,  and  that  since  inter- 
national balances  must  be  settled  in  international  money 
-in  a  commodity  which  is  universally  acceptable — it  is 
necessary  to  maintain  such  a  reserve  of  gold  as  will 
suffice  to  meet  these  international  balances. 

It  may,  however,  be  objected  that  international  trade 
involves  both  imports  and  exports  and  that  it  is  therefore 
merely  barter.  If  imports  and  exports  over  a  short 
period,  say  three  months  or  six  months,  coincided  precise- 
ly or  even  nearly,  such  would  be  the  case;  but  they  do 
not.  Jloreover,  there  is  a  constant  movement  of  capital 
from  one  country  to  another,  notably  from  Europe  to 
America  and  from  America  to  Europe.  Every  day  on 
the  Bourses  and  Stock  Exchanges  of  Europe  and  the 


180 


ECONOMICS 


United   States,   American   securities  are  bought  und 
sold.     The  payments  for  these  securities  have  to  be  niiidi'. 

For  severiil  years  after  tlie  Civil  War  the  Unitd 
States  borrowed  lieavily  from  Kurope,  tlicse  loans  W^'mg 
transferred  partly  in  goods  and  partly  in  gold.  'I'ht 
funds  so  derived  were  expended  in  railways  and  in  in- 
dustrial enterprises.  The  accumulation  of  capital  in  tht 
United  States,  especially  during  the  period  betwmi 
1890  and  1910,  led  to  the  repayment  of  some  of  tliiy 
loans  through  the'  purchase  of  American  seairitics  in 
Ivondon  and  elsewhere.  Meanwhile,  however,  owiiijr  ti 
the  development  of  American  industries,  large  furthtr 
obligations  were  incurred  in  Europe  between  1900  and 
1900.  These  obligations  were  intended  to  be  of  a  tem- 
porary character,  so  great  was  the  optimism  of  the  tiiiif. 
The  funds  from  these  new  loans  were  invested  in  hij;lii,v 
permanent  forms — in  industrial  enterprises  and  the  like 
The  immense  efforts  to  repay  these  obligations  within 
the  stipulated  period  were  aided  to  a  certain  extent  bv 
the  expansion  of  industry  and  by  the  aceumulatidii  of 
capital  during  the  later  part  of  the  period  (in  1905 
1906) ;  but  the  strain  was  too  great,  and  from  this  and 
other  causes,  as  already  explained,  arose  the  currenn 
crisis  of  1907 — a  crisis  which  may  in  general  be  said  to 
have  been  caused  by  concentrated  strain  upon  an  un 
concentrated  system. 

178.  Money  and  credit  combined  influence  jmas.- 
It  is  thus  very  clear  that  the  influence  of  the  movements 
of  credit  and  the  influence  of  the  movements  of  gold 
must  be  taken  together.  The  greater  the  volume  of 
credits  necessitated  by  the  greater  volume  of  business, 
the  greater  the  volume  of  gold  which  is  necessaiy  to  siis 
tain  these  credits.  If  the  required  volume  of  gold  is,  fi"| 
any  reason,  not  forthcoming,  the  credit  system  n 


UELATION    TO    PRICES 


18- 


lutomatically  contract.    This  automatic  contrarrion  is 
one  of  the  cau  «;s  of  cretlit  crisci 

While  it  is  true  tliat  by  fur  the  greater  vohinic  of 
the  amounts  irvolved  in  tlie  inlerchunj{e  of  commo<litii's 
is  transferred  from  the  purchasers  to  the  sellers  of  goinis 
bv  the  means  of  instruments  of  credit,  it  is  nevertheless 
true  that  these  instruments  of  credit  would  be  valueless 
«ere  it  not  for  the  fact  that  on  demand  or  at  a  certain 
stated  period  they  can  be  in  turn  exchanged  for  gold 
or  silver.  So  long  as  confidence  exists  that  this  ex- 
ohange  can  be  effected,  the  instniments  of  credit  may 
remain  current,  but  the  moi^ent  a  breath  of  suspicion 
arises  that  the  debtor,  whether  he  is  a  banker  or  a  mer- 
chant, is  not  in  a  position  to  meet  his  obligations,  it  be- 
comes impossible  for  him  to  issue  any  more  instruments 
of  credit.  Those  which  he  has  already  issued  come  to 
be  presented  at  maturity  and  as  he  cannot  replace  them 
by  others,  he  must  meet  them  in  hard  cash. 

179.  Bank  reacrva. — The  amount  of  hard  cash  which 
isavailable  for  meeting  credit  obligations  is  thus  not  only 
not  a  matter  of  indifference;  it  is  a  matter  of  the  Wghest 
importance.  A  banker,  for  example,  who  lends  his  cap- 
ital and  the  funds  with  which  he  is  entrusted  by  others, 
must  preserve  a  certain  proportion  in  which  three  ele- 
ments are  concerned.  He  may  lend  some  of  his  money 
on  relatively  long  dated  securities,  he  may  lend  some 
of  it  on  short  dated  securities  or  on  call  and  he  must  keep 
» certain  proportion  of  it  in  his  safe.  If  he  should  not 
maintain  a  reserve  in  his  vaults,  his  credit  would  disap- 
pear, because  he  might  be  unable  to  meet  a  legitimate 
claim  for  some  of  the  funds  entrusted  to  his  keeping. 

Reserves  are  thus  necessary  in  the  ease  of  the  individ- 
'>«1  banker  and  therefore  of  all  bankers.  In  the  United 
States  and  in  Canada  bankers  customarily  keep  a  portion 


•i 


18« 


El'OXOM'CS 


"f  their  rcscncs  in  coin — gold  and  silver — and  a  prirlidn 
in  "kgal  tenders"  or  notes  of  the  (iovernnient. 

If  the  bankers  are  obliged  to  hold  "legal  tenders"  iiml 
if  the  Government  docs  not  retain  agoinst  thest'  instni- 
nients  of  credit  an  equivalent  amount  of  coin,  tlie  "kj(al 
tenders"  are  not  in  any  legitimate  sense  a  reserve,  tin; 
are  really  a  forced  loan  to  the  (iovernnient.  The  "lixal 
tenders"  en  Iw  considered  as  a  reser\e  only  if  they  are 
instantly       -Imngeable  for  coin  or  bullion. 

If,  then,  the  banker  does  not  hold  nil  his  reserve  in 
coin,  the  (iovernment  must  hold  in  coin  that  portion  »f 
his  reserv'es  which  is  represented  by  "legal  tender,"  otliir 
wise  the  (Jovernment  imperils  the  solvency  of  tlie  bniiktr, 
for  there  con  be  no  compulsion  upon  his  creditors  to  ac- 
cept the  "legal  tenders"  in  lieu  of  cash  unless  the  creditnh 
can  convert  them  into  coin  should  they  wish  to  do  sn. 
The  creditors  of  the  banker  may  be  in  Europe  wkre 
"legal  tenders"  of  the  United  States  or  of  the  Canadian 
Governments  are  simply  looked  upon  as  a  means  of  (ili- 
taining  gold.  If  they  do  not  answer  to  this  descrijitioii 
they  are  valueless  ihere. 

While  there  cannot  be  held  to  be  a  direct  relation  Ix- 
tween  the  quantity  of  gold  in  circulation  and  the  raiifjt 
of  prices  of  consumable  commodities,  tliere  is,  nevertlit- 
less,  through  credit  an  indirect  relation.  The  sniootli 
working  of  the  intricate  mechanism  of  international 
credit  depends  upon  the  instant  availability  of  sufficient 
gold  to  meet  any  legal  demand  upon  those  who  ha .  e  tiie 
duty  of  settling  balances.  If,  for  any  reason,  such  a  de- 
mand caimot  be  met,  friction  is  developed  which  iiust 
be  more  cr  less  disturbing  to  the  whole  fabric  of  credit. 
5Iany  remote  causes  may  have  contributed  to  produce 
the  situation  which  led  to  inability  to  meet  the  deiiiand. 
but  it  is  the  inability  to  do  so  which  brings  to  liglit  tlie 


IlKLATION    TO    PUICKS 


1H3 


fact  of  the  orf^anic  rclntinn  of  the  affairs  of  llie  ilcfaiiltcr 
to  tlie  general  system  of  credit.  If  the  defaulter  is  ini- 
prtant,  widespread  doubts  are  east  u|M)n  tite  solvency 
of  others.  When  Overend  (Iiirney  &  t'onipany  failed 
an'l  when  Baring  Brothers  placed  their  affairs  in  the 
hands  of  the  Bank  of  Kngland,  great  shocks  were  given 
to  credit.  The  beginning  of  the  credit  and  currency 
crisis  of  1007  was  indicated  by  a  few  significant  failures. 
Such  failures  did  not  cause  the  crisis.  They  were  merely 
incidents  in  it. 

180.  Importance  of  clastic  currency  system. — No  sys- 
tem of  currency  or  banking  is  pnxjf  against  all  possible 
crises,  but  a  crisis  may  be  precipitated  or  the  conse- 
quences of  a  crisis  may  be  made  more  injurious  or  more 
enduring  by  defects  in  such  systems.  The  maintenance 
of  sufficient  reserves  and  the  automatic  expansion  and 
contraction  of  credit  are  the  most  certain  means  of  avoid- 
ing acute  crises  and  of  mitigating  their  effects  when  they 
occur. 

It  is  possible,  however,  to  go  to  excess  even  in  gold  re- 
serves. The  reser%es  may  be  of  such  a  character  that 
gold  deposited  in  them  does  not  enter  into  or  remain  in 
circulation.  When  gold  is  hoarded  by  private  indi- 
viduals, it  passes  out  of  circulation  during  the  period  of 
iioarding.  The  Governments  may  bnard  gold  with  the 
same  effect  a:  private  individuals.  The  war  hoard  of 
the  German  Government,  which  it  keeps  in  the  fortress 
of  Spaiidau,  is  not  of  great  magnitude,  but  it  is  with- 
drawn from  circulation  so  long  as  it  remains  there.  No 
fiduciary  circulation  is  issued  against  it  and  it  does  not 
act  as  a  reserve  for  any  but  a  military  crisis. 

The  prosperity  of  Egypt  and  India  have  given  the 
Mohammedans  in  these  countries  increasing  resources, 
and  as  is  their  habit  when  they  accumulate  wealth,  they 


184 


ECOXOMICS 


have  hoarded  gold.  This  hoarding  has  resulted  in  the 
diversion  to  Egypt  and  India  if  a  large  proportion  of 
the  annual  pnxhiction  and  conscijuently  to  a  diminuti(}ii 
of  the  amount  of  gold  which  it  was  expected  would  readi 
Europe,  and  would  there  be  employed  as  the  basis  of 
general  international  credits.  Fears  of  political  disturb- 
ance and  of  war  both  in  the  near  and  in  the  far  East  have, 
from  time  to  time,  further  induced  hoarding  throughout 
these  regions.  Aleanwhile  the  demand  for  gold  for  in- 
ternational currency  purposes  has  Increased  with  the  in- 
crease of  trade. 

A  relatively  high  level  of  international  prices  indicates 
either  abundance  of  gold  or  expansion  of  credit.  If  it  is 
due  to  the  foi-mer  condition,  it  is  likely  to  be  permanent; 
if  it  is  due  to  the  latter  condition,  it  is  bound  to  be  tem- 
porary. In  so  far  as  the  expansion  of  credit  bas  been 
due  to  the  supposititious  availability  of  gold  for  currency 
purposes  when  such  availability  does  not  exist,  the  ex- 
pansion of  credit  must  be  as  temporary  as  if  it  vere  not 
based  on  any  supposition  of  that  kind.  In  so  far  as  tiie 
hoarding  of  gold  has  withdrawn  the  metal  from  reserves 
available  as  the  foundation  of  credit,  such  hoarding  con- 
tributes to  the  weakening  of  credit  and  therefore  to  the 
fall  of  prices. 


CHAPTER   VIII 

EFFECT    OF    LEGISLATION    ON    PRICES 

181.  Changes  in  monetary  laws. — Since  the  quan- 
tities of  the  precious  metals  available  for  use  as  money 
influence  prices,  the  operation  of  monetary  laws  may, 
through  affecting  the  quantities  so  available,  contribute 
to  a  rise  or  fall  of  prices.  If,  for  instance,  silver  is  large- 
ly used  in  a  country  for  purposes  of  exchange  and  the 
(Jovernment  passes  a  law  which  removes  silver  from  the 
category  of  legal  tender  currency,  there  will  tend  to  be 
a  rise  in  all  prices  stated  in  silver  and  a  fall  in  all  prices 
stated  in  gold.  This  condition  actually  occurred  in  1876 
after  Germany  had  "demonetized"  silver,  and  when  the 
Latin  Union  (FraTice,  Belgium,  Switzerland  and  Italy) 
had  restricted  their  silver  coinage.  The  effect  of  a  law 
which  would  attempt  to  force  upon  a  country  an  irre- 
deemable paper  currency  has  already  been  noticed. 

While  direct  attempts  on  the  part  of  Governments 
to  influence  the  course  of  prices  through  monetary  laws 
have  generally  been  defeated  by  unforeseen  reactions,  all 
monetary  laws  influence  prices  more  or  less  definitely. 
Laws  on  banking  may,  for  example,  by  restrictin'^  or 
extending  the  kinds  of  security  upon  which  a  banker 
may  lend  money,  influence  prices  by  enabling  the  bor- 
rower to  refrain  from  selling  at  a  moment  when  by  throw- 
ing his  goods  upon  the  market  (a  course  which  in  the 
absence  of  accommodation  he  might  have  to  adopt)  the 
price  might  be  depressed.  ' 

182.  Duties. — The  influence  of  an  excise  duty  upon 

185 


m 


186 


ECONOMICS 


the  price  of  a  commodity  is  in  general  to  increase  tlu 
price  by  the  amount  of  the  excise  duty.  Thus,  for  ex- 
ample, in  the  United  States  denatured  alcohol,  or  alcolml 
which  has  been  rendered  noxious  to  the  taste  in  order  tn 
prevent  its  consumption  as  an  article  of  drink,  is  sold  tn 
scientific  institutions  for  scientific  purposes  at  a  certain 
net  wholesale  price  per  gallon,  no  excise  duty  being 
charged  by  the  Government.  In  Canada,  on  the  other 
hand,  the  Government  levies  an  excise  duty  upon  this 
commodity  no  matter  for  what  purpose  or  by  whom  it  is 
intended  to  be  used.  The  price,  therefore,  to  scientific 
institutions  in  Canada  is  the  net  price  of  tiie  alcohol  plus 
the  duty,  making  the  price  of  precisely  the  same  com- 
modity in  Canada  five  times  the  price  in  the  United 
States. 

Excise  duties  on  commodities  manufactured  in  a  coun- 
try are  of  course  always  supported  by  customs  duties 
levied  on  the  frontier.  In  the  case  of  all  commodities 
which  are  subject  to  excise  duties,  under  normal  condi- 
tions of  trade,  the  consumer  must  pay  all  of  the  duty- 
customs  or  excise. 

The  case  in  respect  to  customs  duties,  other  than  tliose 
levied  to  support  excise,  is  somewhat  diiferent.  The 
following  is  the  general  principl  upon  which  i:  may  be 
determined  in  any  particular  case  to  what  extent,  if  any, 
the  customs  duty  is  included  in  the  price  paid  by  the  final 
consumer.  It  must  be  observed,  however,  that  the  prin- 
ciple is  extremely  difficult  to  apply  because  of  the  diffi- 
culty of  following  step  by  step  the  transactions  by  means 
of  which  any  given  commodity  passes  from  the  exporter 
in  one  country  to  the  consumer  in  another.  In  some 
instances,  it  is  possible  to  follow  with  care  the  series  of 
transactions,  but  the  risk  of  error  is  considerable. 

It  need  scarcely  be  pointed  out  that  statements  to  the 


KFFIXTS    OF    LEGISLATION    OS'    PRICES     187 

effect  that  customs  duties  are  always  included  in  the 
price  paid  by  the  consumer  or  that  such  duties  are  never 
iiichided  are  eciually  valueless;  in  general,  statements 
about  the  matter  in  a  particular  case  are  based  upon  im- 
pressions and  not  upon  evidence.  The  principle  upon 
which  the  evidence  may  be  collected  is  as  follows: 

183.  JVho  pays  the  tax?  How  to  test.— L.et  us  sup- 
pose, in  the  first  instance,  an  atmosphere  of  perfect  com- 
])etition  in  which  sellers  compete  with  one  another  so 
strenuously  that  all  of  them  are  selling  at  the  marginal 
profit — that  is,  at  the  profit  below  which  none  could  sell 
and  remain  in  business.  Unujr  conditions  of  that  kind 
a  tax  upon  the  commodities  which  were  sold  would  neces- 
sarily fall  upon  the  buyers  of  the  commodity.  If  these 
buyers  bought  to  sell  again  and  if  they  also  were  work- 
ing upon  a  marginal  profit,  a  tax  upon  the  commodity 
would  necessarily  be  passed  on  by  them  to  the  consumer. 
Tiie  price  being  the  lowest  possible  (under  the  condi- 
tions, indeed,  he  woulJ  himself  have  the  larger  share  in 
determining  it),  the  consumer  would  be  able  to  pay 
the  tax  and  would  have  to  pay  it  or  go  without  the 
goods. 

Let  us  suppose  an  exactly  contrary  case.  In  this  case 
the  atmosphere  is  not  one  of  competition,  but  is  one  of 
monopoly.  The  manufacturer  and  seller  of  the  goods 
in  question  has  been  able  to  monopolize  the  sale  of  the 
goods  and  has  used  his  power  to  the  extent  that  he  ob- 
tains for  the  goods  the  highest  price  which  the  consumer 
can  pay  and  live.  If  now  a  tax  is  placed  upon  such 
goods,  it  is  obvious  that  the  consumer  cannot  pay  be- 
cause he  is,  so  to  say,  at  his  last  gasp.  He  can  pay  no 
more  for  the  goods  than  he  has  been  paying.  If  the 
price  rises,  he  caimot  buy.  The  monopolist  manufac- 
turer can  sell  only  if  he  pays  the  duty  himself,  that  is, 


lit 


188 


ECONO.MICS 


!| 


if  he  rontinues  to  sr'l  the  goods  at  the  price  which  lie 
obtained  previous  to  the  imposition  of  the  duty. 

If,  however,  the  customs  duty  on  the  conmiodity  he 
manufactures  is  increased  until  it  absorbs  the  whole  of 
the  profit,  which  the  manufacturer  makes  in  excess  of 
what  he  could  make  in  some  other  business,  he  will  stop 
exportation  and  divert  his  capital. 

If  this  were  universal  the  tax  would  yield  no  revenue, 
the  consumers  would  not  consume  and  the  foreign  pro- 
ducer would  not  produce.  The  Island  of  Sumatra  pos- 
sesses a  monopoly  of  the  supply  of  a  certain  kind  of 
pepper,  the  policy  of  the  Dutch  East  India  Government 
having  been  to  concentrate  the  cultivation  of  particular 
spices  in  particular  islands.  For  that  reason,  althoujili 
Sumatra  pepper  competes  with  peppers  of  other  vari- 
eties, those  who  prefer  it,  provided  they  are  numerous 
enough  to  influence  the  market  importantiy,  would 
have  to  pay  the  Sumatra  price  for  it,  which  would,  under 
the  conditions,  be  higher  than  that  of  other  peppers.  If 
a  new  import  duty  were  imposed  or  an  existing  duty 
increased  upon  Sumatra  pepper  alone,  a  portion  of  this 
advantage  in  price,  although  perhaps  not  the  whole  of  it, 
would  have  to  be  foregone  by  the  Sumatra  producer— 
that  is,  be  would  have  to  pay  the  duty  in  the  form  of 
diminished  price.  If,  however,  the  Sumatra  pepper  en- 
joyed no  advantage  in  price,  the  monopoly  notwithstaml- 
ing,  because  it  had  to  compete  with  other  peppers  of  like 
quality,  and  if  the  duty  were  indiscriminately  imposed 
upon  all  peppers,  since  the  price  would  thus  be  arrived 
at  by  competition,  the  bulk  of  the  duty  would  probably 
fall  upon  the  consumer;  only  a  small  portion  of  it,  if  any, 
would  fall  upon  the  pepper  growers. 

Such  extreme  cases  are  rare,  but  all  cases  come  lie- 
tween  the  two  extremes.    According  as  the  element  of 


EFFECTS    OF    LEGISLATION    ON    PHICES     189 

competition  or  monopoly  is  dominant  at  each  stage  of 
the  process  of  manufacture,  transport  and  sale,  the  tax 
will  be  paid  by  one  or  other  party  to  the  transaction.  In 
general,  the  incidence  of  the  tax  is  determined  by  an 
explicit  or  an  implied  compromise.  The  tax  may  be  par- 
tially paid  by  the  consumer  and  partially  by  each  one  of 
the  numerous  persons  through  whose  hands  the  com- 
modity had  passed,  including  the  manufacturer.  Such 
is  the  general  principle  upon  which  the  incidence  of  cus- 
toms duties  may  be  determined  in  partiailar  cares. 

In  est.matin'r  the  effect  of  tariffs  upon  prices,  much 
importance  must  be  attached  to  the  question  of  quality— 
the  prices  of  ui;'=ke  commodities  ought  not  to  be  com- 
pared with  one  a/iother— and  importance  should  also  be 
placed  upon  the  condition  of  the  market  at  the  time  tlie 
duty  is  imposed  or  a  comparison  instituted.  A  stable 
market  in  which  a  customary  price  has  thoroughly  estab- 
lished itself  is  very  difficult  to  move  either  up  or  down 
by  the  increase  or  diminution  of  a  tariff.  On  the  other 
hand,  a  sensitive  market  will  anticipate  tariff  changes, 
even  sometimes  erroneously. 

184.  S'pcculation  and  prices. — Speculation  on  an  im- 
portant scale  is  most  obsen  able  in  the  highly  organized 
markets  (as  in  the  cottrn,  wheat,  iron,  copper,  silver 
markets),  but  it  may  be  held  as  existing  in  all  markets 
and  in  connection  with  all  commodities.  The  essence  of 
speculation  is  the  purchase  or  sale  of  commodities  not 
immediately  required,  or  the  refraining  from  purchas- 
ing or  selling  commodities  tue  sa  le  or  pui  jhase  of  which 
is  not  immediately  indispensable. 

In  fact,  all  buying  and  selling  which  is  not  merely 
from  hand  to  mouth  is,  in  the  strict  sense,  speculative 
Imyiiig  and  selling.  The  farmer  who  refrains  from  sell- 
ing his  wheat  because  he  thinks  that  an  advance  in  the 


-•m 


190 


ECONOJIICS 


market  is  likely  to  occur,  speculates  in  wheat  in  the  same 
way  that  a  miller,  who  buys  weeks  in  advance  wheat  dc- 
liverable  in  September,  speculates  in  wheat.  A  line  may, 
however,  perhaps  be  drawn  between  the  genuine  dealer 
in  wheat,  like  the  farmer  and  the  miller,  and  the  groups 
of  persons  whose  business  consists  exclusively  in  buying 
and  selling  wheat  which  they  have  no  intention  of  ever 
either  receiving  or  delivering. 

It  may  be  obser\ed,  however,  that  the  presence  of  siieii 
groups  in  the  wheat  market— groups,  that  is,  who  will 
always  buy  and  always  sell  at  a  price — has  contributed 
importantly  toward  the  organization  of  the  wheat  trade. 
Wheat  not  only  is  in  universal  demand  because  a  large 
proportion  of  tlie  human  race  use  it  as  a  staple  food,  but 
it  is  immediately  salable  because,  whether  there  is  a  de- 
mand for  consumption  at  a  particular  moment  or  not, 
people  can  be  found  who  are  willing  to  speculate  upon 
the  future  demand  and  to  purchase  immediately, 

185.  Cornering. — It  is  true  that  speculators  attempt 
sometimes  to  control  the  supply  by  "cornering."  This 
operation  can  be  successfully  performed  only  wlien  ow- 
ing to  coincident  increase  of  demand  pnd  restriction  dI' 
supply  the  surplus  of  wheat  over  the  quantity  necessary 
for  consumption  is  relatively  small.  A  speculator  with 
extensive  credit  may  under  such  conditions  secure  for  a 
time  a  certain  position  in  the  market,  which  may  enal)le 
him  to  dictate  terms  to  other  speculators  who  are  dealing 
in  this  surplus.  Thus,  the  market  quotations  may  for 
some  days  exhibit  violent  fluctuations,  these  fluctuations 
being  due  to  the  manipulations  of  speculators. 

The  great  mass  of  transactions  in  wheat,  honevcr, 
which  are  conducted  in  advance  of  receipts  and  delirerits, 
are  not  as  a  rule  touched  by  the  speculative  fl\n-ries. 
Yet,  when  speculation  in  the  wide  sense  is  considered, 


EFFECTS    OF    LEGISLATION    ON   PRICES     101 

there  can  be  no  doubt  that  market  prices  are  influenced 
by  the  circumstance  that  sometimes  the  farmer  withholds 
his  wheat  from  sale  and  somet:  nes  the  miller  buys  great- 
ly in  excess  of  his  immediate  requirements.  The  1918 
Bank  Act  of  the  Dominion  of  Canada  contains  a  clr  ise 
which  entitles  chartered  banks  to  lend  to  farmers  oi  the 
security  of  their  wheat,  the  object  being  to  enable  the 
farmer  to  hold  his  crop  for  an  advance  in  price  should 
he  desire  to  do  so.  It  is  the  practice  among  millers 
when  buying  wheat  for  manufacture  into  flour  to  sell 
futures  at  the  market  price  at  the  time  of  purchase  in 
order  to  protect  themselves  against  a  fall  in  the  market 
when  the  flour  is  ready  for  it.  This  is  known  as  "hedg- 
ing." « 

When  the  population  of  Western  Europe  and  of  the 
United  States  was  increasing  rapidly  in  the  latter  part 
of  the  eighteenth  century,  and  the  beginning  of  the 
nineteenth,  and  when  prices  of  foodstuffs  were  in  conse- 
quence  advancing  rapidly,   attempts   to  "corner"  the 
market  became  very  frequent  and,  owing  to  the  accumu- 
lation of  capital,  some  of  them  were  more  or  less  suc- 
cessful.   Old  laws  were  put  in  force  against  the  prac- 
tice of  "cornering,"  but  an  even  more  efl'ective  check 
upon  It  was  imposed  by  the  formidable  "meal"  and 
"br.ad"  riots  in  which  the  granaries  of  the  merchants 
were  plundered  and  the  contents  distributed,  the  prin- 
cipal inhabitants  of  the  towns  sometimes  taking  part  in 
these  riots.    The  chief  protection  against  "corners"  in 
the  great  staples  must,  however,  lie  in  the  increasing 
magnitude  of  the  operations  which  would  be  ntcessarv 
in  order  to  manipulate  a  corner.    It  may  be  repeated  that 
a   corner    can  only  be  successful  when  the  surplus  i-f 
small.    It  IS  true  that  that  moment  is  the  time  when  a 
corner"  is  most  likely  to  cause  distress  by  the  restric- 


102 


ECONOMICS 


tion  of  competitive  selling  in  an  abnormally  high  mar 
ket. 

186.  Regulation  of  price  fluctuation*. — From  the  dis- 
cussion of  the  complicated  series  of  influences  aft'eitinir 
movements  of  prices  in  this  and  preceding  chapters,  it 
is  obvious  that  the  elimination  even  of  an  important 
member  of  the  group  together  with  its  reactions  upon 
the  others  would  not  altogether  obviate  fluctuations, 
although  such  elimination  might  diminish  the  range  and 
frequency  of  fluctuations.     For  instance,  if  the  whole 
of  the  influence  of  currency  movements  uprn  prices 
were  eliminated  (to  put  the  case  so  extremely  that  tlic 
condition  would  be  impossible),  there  would  still  re- 
main numerous  other  influences  upon  supply  and  de- 
mand V  hich  would  cause  both  of  these  to  fluctuate,  and 
which  would  therefore  cause  variations  in  the  relative 
value  of  commodities,  however  these  values  might  be 
estimated.     Nevertheless,   the   fluctuations   of   prices, 
which  are  directly  or  indirectly  due  to  currency  move- 
ments, are  so  important  that  regulation  of  thae  move- 
ments may  be  expedient  in  so  far  as  such  regulation  is 
coiiipatible  with  the  economic  laws  which  determine  the 
movements  of  goods  and  of  money  as  well  as  to  a  large 
extent  the  migration  of  people.    If  government  regula- 
tion conflicts  with  these  laws,  it  must  fail.    Earthquakes 
and  floods  may  be  taken  into  account  and  their  efl'ects 
sometimes  minimized  by  appropriate  precautions,  but 
1'  ;islation  against  them  is  futile.    Economic  movements 
on  a  large  scale,  however  little  we  may  know  about 
them,  may  be  regarded  as  scarcely  less  invincible  than 
other  movements  of  nature. 

187.  Cost  of  Iiimg.~The  question  of  the  cost  (if 
living  is  discussed  under  the  head  of  eonsuuiptiuii.  biil 
here  it  may  be  observed  that  the  movements  of  prices 


KFFECTS    OF    LKGISLATION    ON    PIIIC'ES     193 

are  not  uniform  nor  are  they  coincident.  The  causes 
of  price  fluctuations  are  so  numerous  that  no  uniformity 
is  possible.  Tlicre  thus  arise  great  disparities.  Peo- 
ple who  have  one  commodity  to  sell  find  that  the  price 
has  fallen,  while  in  the  same  period  the  prices  of  the 
commodities  they  desire  to  buy  have  risen.  When 
movements  and  prices  are  active  these  disparities  are 
most  numerous,  and  the  disturbance  of  economic  re- 
lations which  they  produce  most  pronounced. 

If  advances  in  prices  were  general,  and  if  advances  in 
wages,  salaries  and  other  means  of  incon:e  corresponded 
closely  and  immediately  to  such  general  advances  in 
prices,  there  would  be  no  question  of  the  increased  cost 
of  living  under  the  standard  of  comfort  prevailing. 
Such  a  course  of  events  does  not  happen,  however. 
W'ages  must  in  general  advance,  but  they  do  not  do  so 
immediately,  and  they  may  fall  when  the  prices  of  the 
necessaries  of  life  fall,  but  they  do  not  do  so  immedi- 
a..iy.  In  short,  the  curve  of  wages  rises  more  slowly 
and  falls  more  slowly  than  the  curve  of  the  prices  of 
the  necessaries  of  life.  Wage*  are  not  necessarily 
affected  by  the  prices  of  commodities  other  than  the 
necessaries,  although  statements  of  the  movements  of 
prices  include  in  general  both  categories  of  commodities. 
These  points  will  he  more  fully  dealt  with  in  connection 
with  wages  and  with  the  consumption  of  the  working 
population. 

188.  Trade  cycles.— WhWt  it  is  tnie  that  depression 
and  inflation  of  trade  are  "states  of  mind,"  it  is  also  true 
that  these  states  of  mind  are  induced  by  certain  objec- 
tive conditions.  These  conditions  appear  to  recur  with 
an  approach  toward  regularity  in  their  frequency. 
Thus,  a  period  when  demand  is  fully  up  to  if  not 
slightly  in  excess  of  supply,  when  industry  is  fully  oc- 

C-I— IS 


104 


ECOXO.MICS 


cupied.  when  prices  are  advnncitiff  and  profits  arc  in- 
creasing,  is  by  general  consent  regarded  as  a  perio<l  „f 
brisk  trade.    Wlien  demand  is  greatly  in  excess  of  sup. 
ply  and  when  prices  rise  sharply,  an  increase  of  pro- 
duction  follows,  and  when  this  production  is  incrcasul 
to  such  an  extent  that  it  meets  the  demand  and  scc.ns 
hkely  to  be  pushed  beyond  it,  such  a  period  is  by  gt„. 
eral  consent  regarded  as  one  of  inflation.    When  sni). 
ply  is  greatly  in  excess  of  demand,  when  prices  fall 
when  profits  decline,  when  production  is  reduced,  wiien 
employment  diminishes  and  credit  shrinks,  such  a  period 
IS  by  general  consent  regarded  as  one  of  depression  of 
trade.     Clearly  all  of  these  conditions  are  relative  to 
some  preceding  condition.    Trade  is  brisker  or  is  more 
depressed  in  relation  to  some  antecedent  state  of  trade 
in  which  It  was  not  quite  so  brisk  or  in  which  it  was  not 
quite  so  depressed. 

Efforts  have  been  made  from  time  to  time  to  detect 
a  more  or  less  regular  periodicity  in  these  fluctuations 
and  for  nearly  a  century  the  economic  history  of  the 
commercial  nations  seemed  to  exhibit  trade  cycles  each 
cycle  including  a  period  of  normal  trade,  one  of  inflate  J 
trade  and  one  of  depressed  trade,  which  appe»re<l  ap- 
proximately every  eleven  years.  These  cycles  Mere 
found  to  be  more  or  less  nearly  related  to  a  similar 
periodicity  of  harvests,  and  this  periodicity  of  harvests 
—normal,  abundant  and  deficient— appeared  to  be  co- 
incident with  certain  changes  in  the  solar  envelope  hv 
which  so-called  spots  in  the  sun  exhibited  periidicallv 
certain  changes  in  form 

The  uniformity  of  the  coincidence  of  commercial 
crises  and  solar  phenomenon  has,  however,  net  been 
maintained  of  late  years.  There  may  be  several  realms 
tor  this.     In  former  times  the  state  of  general  trade 


KFl-KCTS    Ol-    LKGISLATIOX    ON    PHICKS     103 

may  have  hml  a  closer  relation  to  hanests  than  it  has  at 
tl,t.  i,rc..,ent  time  or  the  extension  <,f  the  area  in  which 
a  surplus  of  foodstuffs  is  produced  may  have  resulted 
...  more  un.form  total  supply.  A  deficient  harvest  in  one 
c-untry  d,«.s  not  necessarily  mean  a  deficient  harvJt 
in  all  of  the  many  grain-pro<lueing  countries,  and  the  im- 
proved means  of  transportation  and  of  storage  of  grain 
have  brought  within  the  con.n,erc.ial  network  pfaeti- 
cally  all  of  the  grain-prwlueing  region. 

The  hypothesis  on  the  other  hand,  may  be  nnso.md. 
The  occurrence  of  spots  on  the  sun  may  not  be  related 
as  a  cause  either  to  harvests  or  commercial  crises.     I 
.  ohv.ous  that  even  a  century  is  too  short  a  peL    o 

.   i  .st?v"7h      r.'  "^  "  '"'"'^'■"'*'>'  '=^*«"'^'l  Character 
IS^  *'""  '''""*'°""'  ^'""^'"^-"^  "P°n  the 

Ortobtr,  im.  rroleaaor  (.li»pm»n  .   review   id    Eamomw  JoirnJ, 


tha 

ofl 


the 
sclie 


undi 
It  is 
pass 
of  e 
systi 
and 
Oi 
ilistr 
in^, 
studi 
must 
tion 
tribu 
I>rodi 


PART  III:    DISTRIBUTION 


CilAI'TKK   I 

PROBLEMS   OF    DISTRIBUTION 

1 89.  Significance  of  rfM/n7^«^on.— Distribution  in  the 
.■conomic  sense  of  the  word  means  the  pr.K;ess  by  which 
I  thasc  who  contribute  to  pr.Hluetion  obtain  their  shares 
nf  that  which  is  {.HKluced  or  of  its  value  in  the  market. 
In  d.scus.s.nK  this  question,  as  in  disaissinir  all  eco- 
nonnc  questions  of  a  like  character,  we  are  concerned. 
as  students  of  economics,  not  with  what  ought  to  be 
I  the  division  of  the  result  of  production,  but  with  the 
scheme  of  division  as  it  actuullv  exists.     If  we  desire  to 
waniine  critically  any  project  for  the  alteration  of  the 
cxist.nff  economic  system  it  is  advisable  that  we  should 
undeistand   first  of  all,  ],„„•  the  exi.stinK  system  works. 
It  .s  expedient  to  do  this  even  if  we  may  determine  to 
|.ass  from  the  field  of  economics  proper  into  the  field 
of  ethics  or  into  that  of  politics  in  which  ideal  social 
sys  ems  may  appropriately  be  discussed  in  their  ethical 
and  political  aspects. 

Our  present  business,  then,  is  to  learn  in  what  manner 
distribution  takes  place  under  the  influence  of  the  exist- 
ing economic  system,  imperfect  as  it  may  be.  In  the 
study  of  distribution,  as  in  the  study  of  production,  we 
must  have  regard  not  only  to  series  of  cases  of  distribu- 
lon  m  individual  economic  groups  but  also  to  the  dis- 
tribution of  what  has  been  called  the  national  aggregate 
I-roduet.  This  has  also  been  called  the  rent  interest 
197 


198 


FXOXOAIICS 


earnings  fund  or  tlic  national  dividend.  It  is,  however, 
difficult  to  avoid  ambiguity  in  phrases  of  this  kind.  '\'W; 
aggregate  cannot  be  regarded  as  constituting  at  any 
particular  moment  a  determinate  fund  in  tlie  comm.m 
sense  of  the  word. 

Tlie  product  of  a  simple  productive  operation  extr- 
cised  upon  raw  material  which  is  the  "gift  of  natuit" 
to  which  no  one  lays  any  claim  of  ownership,  may  be  tiie 
result  of  the  labor  of  one  person  or  of  many.     If  the  de- 
sign and  the  labor  are  wholly  due  to  the  activities  of  one 
person  there  can  be  no  (juestion  as  to  the  right  of  tliat 
person  to  the  enjoyment  of  the  whole  of  the  prrduct  of 
his  labor,  in  a  community  which  recognizes  any  rijjlit 
of  private  property.     If,  however,  the  produc;  is  "tlie 
result  of  the  activities  of  several  persons  working  upon 
It  together  or  successively,  the  respective  rights  of  tlie 
several  producers  may  be  subject  to  dispute.     If  tlie 
product  is  of  such  a  nature  that  joint  labor  is  iidispeii- 
sable,  it  may  be  very  difficult,  in  the  absence  of  any 
recognized  custom,  to  determine  the  respective  rights, 
and  it  may  be  quite  impossil)le  to  determine  them  upoti 
any  principle  of  ideal  justice. 

Primitive  people  whose  surplus  is  usually  verv^  small 
and  who  under  the  best  conditions  are  engaged  in  a 
more  or  less  unremitting  struggle  with  nature,  have,  as 
a  rule,  a  keen  sense  of  fairness  in  the  mass,  as  well  as  a 
lively  aptitude  for  securing  their  own  interests.  There 
thus  arises  in  such  communities  a  habit  of  balancing  the 
bearings  of  disputed  questions  of  labor  and  of  owner- 
ship. Russian  and  Chinese  peasants  are  conspicuous 
for  the  length  and  minuteness  of  such  discussions.  Tlie 
writer  on  one  occasion  listened  from  ten  in  the  morning 
until  five  in  the  afternoon  to  a  group  of  Russian  pcisants 
discussing  in  great  detail  and  witli  much  power  of  aiialy- 


PROBLEMS    OF    DISTRIBUTION  199 

sis  an  economic  question  of  importance  in  their  village 
life;  and  in  China,  on  more  than  one  occasion,  he  has 
been  kept  awake  hy  Chinese  people  discussing  their  busi- 
ness affairs  with  much  eagerness  in  the  street  in  the 
middle  of  the  night. 

WO.  Difficulty  of  establishing  an  ide.l  sysicir,. 
Sometimes  the  question  is  insoluble  and  ej  peri  is  ma(k- 
to  an  external  arbitrator;  but  more  usuahy  He  (^^spu- 
tants  settle  these  questions  among  themselves  on  terms 
which  satisfy  everybody,  or  perhaps  sometimes  satisfy 
nobody.  In  the  province  of  Archangel  in  Russia,  for 
example,  the  division  of  land  of  varying  qualities  among 
peasants  in  such  a  way  that  each  jjcasaiit  has  not  an 
tqual  amount  of  land,  but  areas  of  land  of  equal  pro- 
ductivity under  normal  cultivation,  is  conducted  by  the 
peasants  themselves  with  marvellous  skill,  and  without 
surveying  instruments,  and  with  general  acceptance. 

Apart  from  questions  which  may  arise  between  the 
actual  workers  upon  the  simplest  productive  operation 
which  involves  joint  action,  there  is  the  question  of  the 
social  indebtedness  of  the  worker.  Not  only  is  he  in- 
debted to  the  organization  of  his  tribe  or  community 
for  the  opportunity  to  practise  his  art  in  peace,  whatever 
his  art  may  be,  but  he  may  be  indebted  for  the  design 
which  he  uses  to  a  long  succession  of  primitive  craftsmen 
of  his  own  or  of  other  tribes  or  even  of  other  races.  In 
any  strict  distribution  of  the  credit  of  production,  these 
earlier  workers  would  also  have  to  be  considered. 

The  demands  of  justice  may  be  regarded  as  going 
much  farther  than  the  mere  labor  of  the  moment.  Even 
in  simple  production  individual  labor  is  a  contradiction 
in  terms;  all  labor  is  social.  The  labor  of  to-day  could 
"of  !)e  what  it  is  but  for  the  labor  of  countless  artificers 
of  the  re.iiote  past. 


200 


ECONOMICS 


In  complex  production,  where  many  persons  are  in- 
volved—some in  tlie  primary  exploitation  of  the  raw- 
material,  some  in  its  transjjortation,  some  in  the  mami- 
facture  of  tools  for  its  exploitation,  transportation  and 
manufacture,   others   in   the   subsequent   manufacture, 
others  in  the  sale  and  perhaps  many  others  who  con- 
tribute the  means  of  life  to  the  workers  while  the  lonj; 
continued  productive  processes  are  going  on— there  are 
almost  infinite  possibilities  of  dispute  as  to  the  respective 
shares  to  which  each  member  of  these  numerous  groups 
IS  entitled.    It  is  obvious  that  in  long  production  proc- 
esses, every  member  of  the  various  groups  cannot  wait 
until  the  total  utility  of  the  product  can  be  realized  even 
by  exchange.    Obviously  none  of  them  could  wait  until,  in 
the  course  of  a  long  process  of  consumption  lastiig  per- 
haps through  centuries,  the  utility  of  the  product  could 
be  completely  exhausted.    Some  method  of  distribution 
therefore  must  exist  by  means  of  which  the  utility  which 
IS  contributed  by  each  contributor  may  Iv    estimated, 
and  the  contributor  compensated  for  that  utility  or  use- 
ful service  as  it  is  valued  at  the  time  when  the  service  is 
rendered— apar::  altogether  from  the  eventual  vilue  of 
that  utility  or  of  the  total  of  utility  to  which  it  con- 
tributed.   Such  a  method  emerged  in  course  of  time  and 
its  characteristics  are  those  of  the  present  economic 
system. 

191.  The  present  system.— Thus  each  member  of  tlie 
group  makes  his  contribution  to  the  productive  process, 
receives  the  return  to  which  he  is  regarded  as  entitled, 
gives  his  quittance,  and  passes  into  the  unknown,  while 
the  product  of  the  joint  exercise  of  his  functions  con- 
tinues to  yield  its  utilities  perhaps  for  many  generations 
of  consumers.  The  process  on  the  face  of  it  seems 
simple.     It  might  be  regarded  as  a  perfect  system  if 


PROBLEMS    OF    DISTRIBUTION  201 

each  member  of  the  group  were  concerned  exclusively 
with  securing  the  interests  of  the  group  as  a  whole,  re- 
gardless of  h,s  own  interests  whene^  er  these  conflicted 
wth  those  of  the  group.     Under  such  a  system  there 
would  not  necessarily  be  equality  of  possessions,  for  if 
every  contributor  were  rewarded  according  to  his  con- 
tribution as  estimated  by  some  economic  Aristides,  there 
might  be  inequalities  because  all  might  not  have  equal 
J.I1,  equal  physical  force  or  e.jually  continuous  health. 
Ihis  inequality  would  result  even  if  there  were  no  in- 
heritance of  property,  and  even  if  the  means  of  produc- 
u,n-land  and  capital-were  possessed  and  adminis- 
ered  by  the  group  as  a  whole  or  by  representatives  of 
the  group  m  the  interests  of  the  whole. 

IQ2  Economic  erjualit„.~Asmmmg,  for  the  mo- 
ment, that  economic  equality  is  a  desirable  social  end  it 
IS  clear  that  while  the  working  of  the  social  system'as 
above  described  might  make  toward  that  end,  it  could 
not  necessarily  secure  it;  because  if  there  were  inequality 
of  skill,  for  example,  such  inequality  would  reappear  in 
the  result  of  any  method  of  distribution  which  was  based 
upon  an  estimation  of  the  value  of  the  services  rendered 
or  upon  the  estimated  value  of  the  product 

The  only  system  as  yet  projected  which  aims  at 
economic  equality  is  the  system  of  communism.  In  this 
ystem  the  factors  of  contribution  to  production  are  ir- 

0  to  the  extent  of  his  power;  his  needs  are  met  from 
the  common  stock  without  reference  to  the  quantity  the 
e  aracter  or  the  value  of  his  individual  service  or  prod! 
uct.  Such  a  system  may  be  organized  and  maintained 
J  mutual  agreement  or  by  force.  Experience  has 
Im.  however  that  it  is  very  difficult  to  maintain. 
partly  because  of  the  variability  of  the  human  disposi- 


III 


202 


ECONOMICS 


tion  and  partly  because  tlie  pitch  of  emotion,  whicli  \W 
voluntary  adoption  of  the  system  involves,  is  difficult  to 
sustain.  In  cases  where  coninuinism  is  imposed  by  com- 
pulsion, the  desire  for  freedom  sometimes  beconus  dnm- 
inant  and  the  system  is  compromised  or  even  destroyuil 
by  flights  or  by  revolt. 

The  most  interesting  and  extensive  communistic  group 
of  this  kind  at  present  in  existence,  is  the  grovip  ol' 
Doukhobortsi  or  Spirit  Wrestlers  (a  Russian  dissentini; 
sect),  about  7,000  of  whom  form  a  strictly  coniniuiilst 
group  residing  partly  in  Saskatchewan  and  partly  in 
British  Columbia.  Their  existing  communism  is  liiit 
partly  to  deliberate  agreement  among  themselves  and 
partly  to  the  moral  force  and  social  pressure  ccercisid 
by  their  leader.  'J.'lie  communal  character  of  thtir  eodii- 
omy  has  not  been  invariable;  it  has  been  marked  In- 
many  fluctuations.  About  2,000  have  abandoned  the 
practice  of  communism  and  live  chiefly  in  Saskatcliew  an 
in  the  same  individualistic  manner  as  the  population 
round  about  them. 

193.  Analifsif  of  distributive  process. — We  may  now 
proceed  to  analyze  the  process  of  distribution  in  •elation 
to  the  process  of  production  which  we  have  alreidy  tx- 
HiTiined.  We  have  found  that  apart  from  the  indispen- 
sable and  contingent  requisites  of  production,  the  fac- 
tors of  production  are  land,  labor  and  capital.  Tlie 
expression  land  is  held  to  include  all  raw  materials  ex- 
tracted from  nature  and  also  natural  agents  such  as 
water  power.  I^abor  includes  manual,  superintendiiif; 
labor  and  directive  labor.  Capital  includes  fixed  capital 
in  the  form  of  buildings,  machinery  and  like  equipment. 
and  circulating  capital  in  the  form  of  funds  whieh  are 
expended  in  periodical  payments  of  wages  and  otlier 
current  expenses  and  which  in  normal  cases  are  retuniei! 


PROBLK.MS    OF    DISTKIBUTIOX  203 

wlienever  the  product  is  exchiaiged  for  money,  the  funds 
being  again  available  for  similar  purposes. 

The  land  and  the  capital  may  lielong  to  one  individual 
and  the  labor  may  be  exercised  by  tlie  same  individual. 
In  such  a  case  the  division  of  the  value  of  the  product 
would  be  subject  only  to  curious  interest;  it  could  have 
no  practical  bearing.  When,  however,  tlie  land  belongs 
to  one  person  or  to  many,  the  capital  to  another  group 
and  when  the  labor  is  exercised  by  still  another,  main- 
tenance of  all  of  these  persons  and  the  ^ntiimance  of 
tlie  exercise  of  their  functions  come  to  be  matters  of 
supreme  importance,  because  the  continuity  of  the  pro- 
ductive process  depends  upon  tliem. 

In  Western  Europe  throughout  the  middle  ages,  and 
in  Eastern  Europe  until  the  middle  of  the  nineteenth 
century,  it  was  almost  universally  l)elieved  that  to  leave 
the  determination  of  the  rent  of  land,  the  rate  of  interest 
and  the  rates  of  wages  to  unrestricted  competition  was  to 
incur  a  grave  social  danger.  Rents,  interest  payments 
and  wagis  alike  were,  therefore,  determined  by"  public 
authority,  either  that  of  the  State  or  that  of  the  munici- 
pality. Survivals  of  public  fixation  of  remunerations 
are  to  be  found  in  the  limitation  of  charges  for  certain 
legal  services,  in  the  regulation  of  railway  rates,  of  pay  - 
ments  for  cabs,  ferry  services  and  the  like,  and,  above 
all,  in  the  statutory  limitation  of  the  rate  of  interest. 
The  imposition  of  a  statutory  minimum  wage  would  be 
an  instance  of  reversion  to  medieval  practice. 

194..  GuUds. — In  addition  to  the  regulative  agency 
of  the  State  there  appeared  also  the  regulative  agency 
"f  the  trade  guilds  acting  either  directly  or  through  the 
municipality  by  means  of  the  influence  they  exerted 
upon  it.  The  whole  conduct  of  business  and,  indeed, 
the  whole  conducl  of  life  were  subject  to  minute  scrutiny 


II 


I 


20* 


ECONOMICS 


and  to  excessive  regulation.  No  one  could  begin  busi- 
ness of  any  kind  or  enter  into  a  trade  unless  he  had  ])ii- 
viously  pursued  the  course  of  education  prescribed  In 
the  guild  to  which  his  trade  belonged,  and  unless  he  w  a:, 
accepted  bj'  the  guild. 

The  story  has  often  been  related  of  how  the  improve- 
ment of  the  steam  engine  by  James  Watt  ran  risk  nf 
being  at  least  delayed  through  the  stringency  of  guild 
regulation  and  through  the  municipal  power  of  tlu 
guilds  even  so  late  as  the  middle  of  the  eighteenth  cen- 
tury. Watt  proposed  to  iiegin  business  in  Glasgow 
as  a  philosophical  instrument  maker.  The  incorporated 
trade  of  Hammermen  (the  guild  of  master  mechanics i 
objected  to  his  doing  so  on  the  ground  that  the  trade 
was  really  part  of  theirs,  that  Watt  had  not  served  a 
proper  aj.  (,renticeship,  and  had  not  been  accepted  l]y 
them  as  a  member.  It  was,  therefore,  impossible  lor 
Watt  to  establish  himself  in  any  part  of  the  city  of 
Glasgow  which  was  under  the  jurisdiction  of  :he  mu- 
nicipality or  the  guild. 

The  precincts  of  the  University  were  not  in  tlis  posi- 
tion; and  the  professors  of  the  University,  among  whom 
at  the  time  was  Adam  Smith,  offered  Watt  the  use  of 
premises  within  its  walls.  It  was  there  that  he  devised 
the  separate  condenser  and  began  the  series  of  inprove- 
ments  by  which  he  brought  the  steam  engine  from  tlie 
laboratory  table  into  the  field  of  industry. 

195.  Beginning  of  unrestricted  trade. — The  general 
movement  toward  freedom,  which  may  be  said  to  have 
had  its  beginning  in  the  eighteenth  century,  was  char- 
acterized by  resistance  to  direct  or  delegated  control  of 
economic  relations  by  the  State.  As  a  part  of  this 
movement,  serfdom  was  abolished  and  the  peasantry  be- 
came free.    Burdensome  restrictions  upon  the  employ- 


PUOBLE.MS    OF    DIS'I'KIBL'TION 


205 


ment  of  artisans  were  removed  and  e(iually  burdensome 
restrictions  upon  the  sale  of  land  and  upon  the  employ- 
ment of  capital  were  seriously  modified. 

The  effects  of  these  changes  in  economic  legislation 
and  in  municipal  regulation  of  trade  were  numerous  and 
complex,  but  important  among  them  there  were  in  West- 
ern Europe,  the  re-enforeement,  and  in  Eastern  Europe, 
tiie  creation  of  a  class  of  free  lalwrers  entitled  by  law 
to  liire  themselves  wherever  they  could  find  employ- 
ment and  for  whatever  wages  they  could  procure.  At 
tlie  same  time,  many  of  the  guild  restrictions  upon  trade 
ceased  to  be  operative,  employers  might  enter  upon  new 
enterprises  without  leave  of  the  organizations  which  in 
tiie  eighteenth  century  had  been  all-powerful.  The  gen- 
eral result  of  the  movement  for  liberty  was  the  begin- 
ning of  an  era  of  competition  in  practically  all  the  fields 
of  industrial  and  commercial  enterprise. 

Til,  birth  of  the  United  States  was  almost  coinci- 
dent with  the  effective  beginning  of  the  European 
movement  for  political  and  economic  liberty.  Indeed 
in  one  of  its  most  important  aspects,  the  American  Revo- 
lution may  be  held  to  have  been  an  incident  in  the  strug- 
gle between  the  newly  arising  capitalistic  interests  and 
the  old.  The  industrial  development  of  Canada  did  not 
begin  in  a  serious  sense  until  toward  the  middle  of  the 
nineteenth  century.  It  was  stimulated  by  the  commer- 
cial movement  of  a  subsequent  epoch. 

196.  Competition  the  result. — The  breaking  down  of 
industrial  and  commercial  barriers  was  not  accomplished 
witiiout  struggle,  nor  was  it  otherwise  than  very  grad- 
illy  brought  about.  Indeed  it  cannot  be  said  even 
now  to  have  been  fully  accomplished,  for  while  old  regu- 
lative methods  fell  into  decay  or  were  abolished,  new 
regulative  methods  speedily  came  into  existence.    Yet. 


m- 


306 


ECONOMICS 


in  general,  it  may  be  said  that  the  characteristic  of  the 
new  period  was  an  atmosphere  of  competition  in  wiiioh 
each  member  of  each  group  of  the  contributories  to  pro- 
duction competed  more  or  less  effectively  with  evi-rv 
other  member.  In  the  course  of  this  competition,  the 
value  of  \he  services  of  each  member  came  to  be  esti- 
mated in  the  same  manner  as  the  utility  of  the  product 
was  estimated  in  the  market  into  which  it  was  eventu- 
ally brought.  In  other  words,  each  member  of  each 
group  was  a  seller  of  his  services  in  *he  market  to  which 
his  larger  group  belonged. 

Thus,  for  examp'e,  as  landownership  became  commer- 
cialized, the  landowner  whose  land  was  occupied  by  a 
productive  enterprise  or  who  desired  that  his  lanJ  should 
be  so  occupied  or  whose  raw  material  was  used  by  pro- 
ductive enterprises,  came  to  be  subject  to  the  compe- 
tition of  other  landowners  possessing  other  lands  of 
similar  character  or  offering  other  raw  materiils  of  a 
similar  description.  So,  also,  the  capitalist  became  a 
seller  in  the  market  for  capital  where  he  found  com- 
petitors also  offering  capital  for  sale.  The  free  hiraUc 
laborer,  no  longer  rendered  immobile  by  restrictive  prac- 
tice and  legislation,  became  a  seller  of  his  labor  in  tlie 
ojjen  labor  market,  competing  with  other  laboreis  offer- 
ing similar  services.  In  all  of  these  markets  tie  con- 
ditions as  to  competition  varied  from  time  ta  time. 
Sometimes  in  each  competitive  field  the  demand  was  in 
excess  of  the  supply  and  sometimes  the  reverse  \pas  tlie 
case. 

It  should  be  observed,  however,  that  while  the  removal 
of  burdensome  restrictions  induced  competition  ir.  fields 
where  previously  there  had  been  little  or  none,  competi- 
tion did  make  its  appearance  even  imdcr  the  restrictive 
influence  of  State  and  guild  regulation.     The  earlier 


PnOBLKMS    OF    DIHTHinUTION  207 

stniggles  of  the  small  and  the  lar«e  capitalists  and  the 
earlier  struggles  of  labor  and  capital  show  that  at  no 
tune  can  it  be  said  that  competition  was  wholly  absent 
Regulations  were  not  imposed  without  difficulty  Per- 
haps especially  under  the  most  stringent  regulations, 
flights  of  peasants  and  movements  of  artisans  from  one 
town  to  another  in  defiance  of  regulations  were  most 
frequent.  State  and  guild  regulations  were  thus  suc- 
cessful rather  in  mitigating  competition  than  is  prevent- 
ing It;  but  as  such  regulations  becaim  of  less  effect 
competition  increased.  ' 


',i, 


CHAPTER  II 

PROCESS   OF    DISTRIBUTION 

197.  Factors  of  production. — We  may  now  cxumim 
the  factors  of  production  in  respect  to  the  sha-cs  ttiiy 
receive  in  distribution  in  their  respective  niarke:s.  ^Vl■ 
shall  afterward  learn  that  the  value  of  the  product  us 
determined  in  the  market  does  not  of  itself  afford  any 
indication  of  the  value  attributed  to  any  of  tht  shares. 
Nevertheless  the  value  of  the  product  reacts  ipon  the 
respective  values  of  the  services  of  the  contributorics. 
through  the  operation  of  demand  in  their  respective  mar- 
kets. The  market  for  capital,  f <  r  example,  is  affecttil 
by  the  demand  for  additional  capital  which  cones  from 
an  industry  in  which  the  price  of  the  product  has  in- 
creased, and  this  also  is  the  case  in  the  markets  for  land, 
for  raw  materials  and  for  labor.  Some  of  these  reac- 
tions will  later  be  indicated  more  fully. 

Since  the  co-operation  of  all  of  the  factors  in  produc- 
tion is  indispensable,  a  detailed  examination  ir  an  in- 
quiry into  distribution  may  begin  with  any  one  cf  them 

198.  Productive  industries  classified. — We  miy  con- 
sider productive  enterprises  as  falling  into  one  cr  other 
of  two  classes:  first,  those  which  are  organized  by  an 
individual  employer  or  by  a  firm  consisting  of  partners 
each  of  whom  takes  a  more  or  less  active  share  in  the 
business  and  each  of  whom  is  responsible  to  the  extent 
of  his  means  for  the  obligations  of  the  firm;  and,  teconl 

208 


PROCKSS    OK    niSTHini'TION  300 

those  enteri»rises  wliicli  are  cnrrieil  011  l>y  joint  stoek  cmii- 
panies  with  limited  liability  on  the  piirt  of  their  sliiire- 
linlders.  The  imlividuul  eiiii)loyer  in  the  firnt  mentioned 
class  may  undertake  the  employing  funetion  himself 
or  he  may  entrust  it  to  a  manager  who  mav  receive  a 
fixed  salary  or  a  salary  i)lus  n  share  of  the  profits.  If 
the  employer  undertakes  the  duties  of  manager  he  must 
be  considered  as  earning  the  salary  whieli  he  would  other- 
wise have  had  to  pay  in  order  to  aeciuire  the  services 
of  a  manager. 

In  the  early  part  of  the  eighteenth  century  the  typ- 
ical individual  employer  was  also  the  manager  of  his  en- 
terprise. He  was  a  professional  master  of  his  craft, 
lie  had  served  an  a[)prenticeship,  and  his  was  the  skill 
which  conducted  his  business. 

Toward  the  nnddle  of  the  eighteenth  century,  as  the 
adoption  of  machinen,-  became  more  prevalent  the 
skilled  employer  often  found  that  neither  his  owp  capi- 
tal nor  his  individual  credit  was  sufficient  to  enable  him 
to  extend  his  business.  Country  bankers  often  came  to 
his  assistance  and  became  "silent  partners"  in  the  busi- 
ness, providing  the  whole  or  the  greater  part  of  the 
necessary  capital  and  taking  a  previously  stipulated 
share  of  the  profits. 

As  the  general  management  even  of  manufacturino- 
business  became  more  and  more  an  affair  of  bargain 
making,  and  of  finance,  including  control  of  financial 
sources,  the  separation  of  function  lietween  the  technical 
management  and  the  business  management  in  the  strict 
sense  became  more  and  more  common.  The  qualities 
demanded  for  the  exercise  of  the  technical  f.mction  were 
not  the  sane  as  those  demanded  by  that  of  the  business 
function  and,  although  iK.th  were  necessary,  it  became 
common  for  the  business  expert  to  employ  ihe  technical 

C  —I — 14 


IVLI'dlil 


S10 


F.CONOMICS 


fxpt-rl.  Thus  those  employers  who  were  tcchtiieally 
qtmUfled  and  who  at  the  snnie  time  hail  an  aptitude  fcr 
husiiiess  frequently  aeiiieved  jjfrcat  prominence  and  ik- 
((iiired  fjreat  fortunes,  while  those  w  ho  were  not  so  m. 
dowed  wereol)liged  to  sink  from  the  position  of  niashr- 
ship  to  that  of  employment.  This  proeess  has  (fme  fur 
in  the  United  States,  where  tlie  lieads  of  nianufactuiirin 
businesses  usually  have  had  a  legal,  mercantile  or  finiin- 
eial  rather  than  a  technical  traininjjr. 

In  the  second  class  of  enterprise  the  function  of  em- 
ployer is  exercised  partly  by  the  elected  directorate  if 
the  joint  stock  company  and  partly  by  the  j^eneral  niicn- 
ajfcr  aj)poiiited  by  it.  The  service  of  the  directorate  is 
remunerated  by  fixed  payments  voted  to  the  <lireet(irs 
by  the  shareholders  and  the  services  of  the  geu^.al  nmti- 
ajrer  is  remunerated  by  a  salary  fixed  by  contiact  ami 
sometimes  supplemented  by  a  share  of  the  profits  or 
by  a  bonus  voted  to  him  either  by  the  directors  or  by  tin 
shareholders. 

The  growth  of  company  enterprise  has  been  one  of 
the  most  conspicuous  economic  features  of  our  time. 
The  company  system  is,  however,  not  new.  Tiiire  wdc 
immense  companies  in  the  later  days  of  the  Ronaii  Ik- 
public  and  in  the  earlier  days  of  the  Empire.  In  tlie 
middle  ages  the  Ilanseatic  League,  which  in  miny  im- 
portant respects  was  analogous  to  a  modern  trust,  con- 
trolled a  large  part  of  international  trade.  In  :he  six- 
teenth, seventeenth  and  eighteenth  centuries  a  lanje  part 
of  the  business  of  every  country  was  controlled  ar  con- 
ducted by  mercantile  companies  with  state  charters. 

199.  Large  corporations. — The  large  company  witii 
numerous  shareholders,  numerous  estates  in  land,  larfit 
ca[)ital  funds,  luimerous  ])roductive  enterjirises,  ind  re- 
lations with  interlocking  banks,  and  practising  more  iir 


i'i«Ki;s.s  or  DisriuiurioN  ^u 

I.  vs  rcmorwltss  c)ii.,x.-titioii  will,  in.livi.lual  trn.krs  „„,| 
niatiiilueturoi-s  un.l  with  sninll  firms,  has  possiw.!  itsdC 
"I  ,i  arKc  part  ,.f  ,„„,l..rM  l.usimss.  The  reasons  f„r  this 
drvc  ..pnicit  have  «Ire«,ly  hvcnuv  apparent.  Thcv  he 
|...rtly  in  the  nec-e..  ity  for  h.r^.  «ce,„„„h,te,l  capital,  in 
nnlcr  to  p-ovHle  the  control  oC  raw  .Materials  and  the 
niadrnjery  of  m.Hlein  in.lu.stry  «,„1  partly  in  the  in- 
.Teased  economy  of  mannfacturc  under  wiu.lesale  eon- 
iMtions. 

The  continuity  and  scope  of  an  in.h.strial  enterprise 
■s  "l"«ys  more  or  less  in  ,„.ril  when  its  success  .iepen.ls 
;-l'«»'  the  skill.  prest.Kc  a.id  health  of  one  person.    Km- 
Imrrassment  nmy  readily  ensue  in  the  event  of  the  sickness 
"r  death  of  an  employer  who  conducts  his  own  business, 
.•|".l  who  1ms  no  one  trnincl  to  take  his  place.    The  trans- 
tm-nec  of  a  hus.ness  to  a  joint  stock  company  is  thus 
a  measure  of  .nsuranee  for  its  continuity  and  expansion. 
Moreover    he  prov.smn  of  additional  capital  by  a  small 
"-"ber  of  individuals  becomes,  after  a  certain  noint   a 
-tter  of  difficulty.     Such  provision  is  ofZ  'ZV 
(achtated  by  the  division  of  the  risk  and  of  the  prom 
amon^,  a  lar«e  number  of  persons.    Hanks  an.l  ^,ther 
creditors  frec.uently  insist  upon  the  formation  of  a  hi.   - 
ness  into  a  jouit  stock  com.^.nv  for  these  reasons.    The 
''""'lance  of  techmV         ..        ■   persons  on  the  one 
"Kl  and  the  alnuu.  .,  'rahle  labor  on  1 

"her,  have  also  contn.„t.n  u.  H.c  ^owth  of  the  jo  nt 
l^'ok  company ;  and  as  the  ,,ositio„  of  the  small  employer 
i*  onies  untenab  e  because  of  the  effectiveness  of  [he 
"-peti  ,on  of  the  company,  he  becomes  a  competitor 

Ks:"'"""^"^  """"■- "^^'---^^ 

uiuon  of  two  or  more  mdustna]  or  other  enterprises  into 


i 


212 


ECONOMICS 


one  company  for  the  purpose  cither  of  uniting  the  forces 
of  competitors  in  the  :!ame  market,  and  so  limiting  com- 
petition, of  controlling  the  sources  of  supply  and  raw 
materials,  of  economizing  in  the  expenses  of  manage- 
ment or  of  getting  the  goods  to  the  market  by  means  of 
advertisement  or  otherwise.  By  combinations  of  tiiis 
kind  production  may  be  controlled  and  overproductioTi 
within  the  limits  of  the  operations  of  the  company 
avoided. 

The  combination  of  two  or  more  private  firms  in  mm 
joint  stock  company  may  lead  to  the  abandonment  of  a 
plant  which  in  the  combined  enterprise  has  beer  found 
to  be  obsolete  or  unnecessary.  When  the  United  States 
Steel  Corporation  was  formed  many  plants  were 
"scrapped"  because  they  were  regarded  as  superfluous. 

Further  pursuit  of  such  a  policy  in  the  combinitioii  of 
companies  either  by  absorption  or  by  alliances  of  a  more 
or  less  formal  character  has  led  to  the  building  up  of 
what  are  known  as  Trusts.  These  united  companies, 
some  of  which  have  reached  gigantic  proportions — espe- 
cially in  the  United  States — have  been  of  late  years  not 
only  conducting  a  large  proportion  of  the  domestic  trade 
of  the  United  States,  but  have  been  entering  very  largely 
into  foreign  trade.  The  operations  of  the  Standird  Oil 
Company  and  of  the  Tobacco  Trust  are  practically-  world 
wide.  Some  of  these  Trusts  have  become  in  effect  huge 
international  combinations. 

200.  Effect  of  large  enterprises. — The  result  of  tlie 
growth  of  large  capital,  when  placed  at  the  disposal  of 
employers,  has  in  all  ages  been  the  same.  It  has  always 
led  to  a  struggle  between  the  large  and  the  small  capi- 
talists and  between  the  large  and  the  small  employers. 
This  struggle  became  very  acute  in  the  sixteenth  anil 
seventeenth  centuries,  and  it  has  again  become  very  acute 


PROCESS    OF    DISTRIBUTION 


213 


in  the  present  time.  The  struggle  of  rival  capitalist  in- 
terests was  inevitably  carried  into  the  field  of  politics, 
each  interest  endeavoring  to  enlist  the  State  in  aid  either 
of  its  defence  or  of  its  aggression.  In  all  of  the  historical 
cases,  the  struggle  has  not  been  a  purely  economic  one. 
The  small  merchants  have  always  enlisted  on  their  side 
such  democratic  sympathies  as  the  times  afforded,  while 
the  greater  merchants  and  the  large  companies  have  been 
able  in  general  to  enlist  upon  their  side  the  influence  of 
the  governing  classes. 

201.  Employer's  position  in  process  of  distribution.— 
The  individual  employer  or  the  privately  organized  firm 
emliarking  in  an  industrial  enterprise,  either  uses  already 
accumulated  capital  or  purchases  that  capital  on  more 
or  less  remote  terms  of  payment  from  some  other  person, 
firm  or  group  of  persons.  In  any  event,  the  entre- 
preneurs either  exercise  the  function  of  capitalists  or 
they  arrange  with  others  to  do  so.  They  go  into  the  mar- 
ket for  capital  and  buy  it  on  certain  terms.  These  terms 
will  dvipend  upon  the  conditions  which  affect  the  money 
market  at  the  time  and  they  will  depend  also  upon  the 
individual  credit  of  the  entrepreneurs  or  enterprisers  and 
upon  the  estimation  which  the  market  makes  of  the  likeli- 
hood of  the  success  of  the  enterprise. 

Similarly  the  enterpriser  negotiates  in  the  market  for 
land.  He  selects  a  site  which  he  thinks  will  serve  his 
purpose  and  if  he  finds  that  the  price  asked  for  it  is  more 
tiian  he  feels  justified  in  paying,  if  he  fails  to  bring  the 
owner  of  the  land  to  his  terms  or  near  to  them,  he  will 
take  a  less  suitable  but  a  less  expensive  site.  He  will 
either  purchase  the  land  with  a  portion  of  the  capital 
which  he  has  procured  (a  usual  case  in  the  Un-ted  States 
and  in  Canada)  or  he  will  lease  the  land  at  a  specified 
rent  per  year  for  a  certain  number  of  years  (the  usual 


\M 


m 


914 


ECONOMICS 


case  in  Great  Britain  and  in  Continental  Europe).  In 
either  ease  he  will  either  exercise  the  function  of  land- 
owner or  he  will  allow  someone  else  to  exercise  it,  pay- 
ing him  the  market  price  for  his  services. 

The  enterpriser  will  then  proceed  to  arrange  his  staff 
of  employees  by  employing  superintending  labor  and 
manual  labor;  first,  in  order  to  erect  the  necessarj-  build- 
ings and  to  install  the  necessary  machinery  and,  then, 
after  the  purchase  of  the  necessary  raw  material,  to  carry 
on  the  process  of  production  for  which  the  factory  (or 
other  industrial  establishment)  has  been  designed. 

The  enterpriser  has  now  expended  all  his  fixed  capital 
and  a  portion  of  his  circulating  capital,  and  he  has  thus 
incurred  certain  periodical  obligations  in  respect  to  the 
payment  of  interest.  He  has  also  incurred  certain  peri- 
odical obligations  involving  the  payment  of  ai  addi- 
tional amount  of  interest  in  respect  to  the  capital  he 
has  invested  in  land  or  he  has  incurred  obligations  in  re- 
spect to  the  payment  of  rent  for  the  land  upoii  which 
he  has  built  his  factory.  He  has  also  entered  into  certain 
contracts  for  the  raw  material  and  for  the  superintend- 
ing and  manual  labor  necessary  for  the  production  of  the 
product  he  intends  to  manufacture. 

202.  Hots>  result  of  production  is  distributed. — Wlien 
the  finished  product  makes  its  appearance  he  sends  it  into 
the  market  and  he  encounters  the  chances  of  that  narket. 
He  offers  an  addition  to  the  former  supply ;  if  tie  sup- 
ply otherwise  has  remained  the  same  while  the  demand 
has  not  altered,  he  may  be  obliged  to  accept  a  price 
lower  than  that  of  the  previous  market  unless  ie  can 
stimulate  demand  to  such  an  extent  as  to  cause  an  in- 
crease of  demand  and  thus  to  cause  maintenance  of  the 
price.  As  he  sells  his  product  and  as  he  is  paid  for  it, 
his  depleted  fund  of  circulating  capital  is  restored;  as 


PROCESS    OF    DISTRIBUTION 


215 


he  continues  to  produce,  his  fund  is  depleted  again,  and 
again  restored  and  so  on. 

If  the  total  yield  from  the  sales  of  his  product  just 
equals  the  expenses  of  production  including  interest  upon 
capital,  rent,  purchase  of  raw  material  and  wages  for 
superintendence  and  for  manual  labor,  he  will  even  then 
not  have  been  able  to  secure  the  continuity  of  his  busi- 
ness.   In  addition  to  the  net  return  as  above  indicated, 
it  will  be  necessary  for  the  enterpriser  to  have  secured 
out  of  the  total  value  of  his  product  as  realized  in  the 
market,  sufficient  to  pay  the  taxes  levied  upon  him  by 
tlie  state  and  by  the  municipality,  together  with  an 
amount  sufficient  to  pay  the  premiums  upon  a  policy 
of  fire  insurance,  and  the  premiums  upon  a  policy  of  in- 
surance against  his  liability  as  an  employer  for  accidents 
which  may  happen  to  his  workmen.    It  will  also  be  nec- 
essary for  him  to  provide  for  repairs  to  his  machinery 
and  for  depreciation,  and  to  provide  for  the  creation  of 
a  reserve  fund  against  the  risks  of  bad  debts  and  any 
other  trade  risks  to  which  his  business  may  be  subject. 
Only  after  all  these  obligations  of  various  kinds  have  been 
met  out  of  the  yield  of  his  product  in  the  market  is  he 
entitled  to  regard  himself  as  having  earned  anything. 
If  his  business  has  yielded  him  only  just  sufficient  to  cover 
his  obligations,  he  has  neither  salary  nor  profits  for  him- 
self. 

203.  Deficiency  or  surplus?— li  his  enterprise  does 
not  yield  sufficient  to  defray  his  obligations,  he  may 
nevertheless  carry  it  on  for  a  time,  meanwhile  obtaining 
fresh  capital  in  the  hope  that  eventually  the  yield  will 
increase;  but  if  he  exhausts  his  credit  before  the  yield 
does  increase,  the  enterprise  must  come  to  an  end. 

On  the  other  hand,  if  the  yield  over  a  certain  period, 
say  one  year,  is  sufficient  to  cover  his  obligations  during 


SIC 


ECO\O.MICS 


that  period,  and  to  yield  even  a  surplus,  that  surplus, 
according  to  the  current  system  of  employment,  beloiifrs 
to  him.  He  may  regard  part  of  the  surplus  as  salary 
an  amount  sufficient,  let  us  say,  for  his  personal  and 
household  expenses — and  part  of  it  as  net  profit.  This 
portion  may  be  devoted  to  the  creation  of  a  reserve  fund, 
against  the  possibility  of  diminution  in  trade  or  in  tlie 
price  of  his  product ;  or  it  may  be  devoted  to  the  repay- 
ment of  some  of  his  borrowed  capital  (in  which  case  he 
would  to  the  extent  which  the  amount  represented,  exer- 
cise the  function  of  capitalist)  or  to  the  extension  of  iiis 
factory  (in  which  case  he  would  also  exercise  the  function 
of  capitalist). 

204.  Employer's  double  function. — In  the  course  of 
his  operations,  the  enterpriser  or  employer,  as  part  of  his 
function  as  organizer,  has  exercised  the  function  of  dis- 
tributing the  value  of  the  product.  He  has  exchanged 
the  product  in  tV-i  market  for  its  value  in  money,  and 
he  has  distributed  this  money  or  a  portion  of  it  among 
the  persons  who  contributed  to  the  productive  process. 
The  individual  shares  of  these  contributories  have  not 
been  determined  in  the  market  for  the  product,  nor  hare 
they  been  determined  arbitrarily  by  the  employer.  They 
have  really  been  determined  for  him  in  the  various  more 
or  less  competitive  markets  into  which  it  was  necessary 
for  him  to  enter  in  order  to  obtain  the  services  aid  the 
material  means  whereby  he  conducted  his  industry. 

205.  Influence  of  supply  and  demand. — The  employer 
is  thus,  neither  as  employer  nor  by  design,  a  benefactor. 
He  is  engaged  in  an  enterprise  by  which  he  expects  to 
make  not  only  a  living  for  himself  but  even  to  realize  an 
indefinite  surplus.  He  is,  in  short,  engaged  in  the  pur- 
suit of  his  own  interest  whether  he  is  working  up  a  small 
business  or  conducting  a  large  one  which  had  been 


PROCKSS    OF    DISTRIBUTIOX 


217 


worked  up  to  a  position  of  magnitude  by  himself  or  by 
otiieis  from  whom  he  acquired  it.  The  other  contribu- 
tories  to  the  production  whose  services  he  has  organized 
are  also  engaged  in  the  pursuit  of  their  own  interests, 
but  their  position  is  characterized  by  an  element  which 
is  absent  from  the  position  of  the  employer.  They  render 
their  services  for  certain  definite  periodical  payments. 
These  payments  are  due,  whatever  may  be  the  gross  or 
the  net  yield  of  the  business.  A  fall  in  price  of  the  prod- 
uct may  take  place,  but  rent,  interest,  salaries  and  wages 
are  unaffected  provided  they  have  been  previously  stipu- 
lated. In  each  case  there  is,  of  course,  risk  of  eventual 
loss,  although  the  employer  ■>  Mable  in  the  first  instance; 
out,  in  the  case  of  salaried  and  wnge-paid  labor,  the  risk, 
owing  to  the  frequency  of  the  periodical  payments,  is 
usually  relatively  small. 

On  the  other  hand,  in  the  event  of  an  advance  in  price 
of  the  product  or  an  increase  in  the  gross  or  net  yield  of 
the  enterprise,  these  payments  still  remain  unaffected. 
If,  however,  such  an  advance  in  the  price  of  the  product 
or  increase  in  the  gross  or  the  net  yield  of  the  enterprise 
takes  place,  even  if  the  increase  is  due  to  economies  in 
management  special  to  the  enterprise,  there  will  be  an 
inducement  for  other  enterprisers  to  enter  into  business 
of  a  sim,:ar  character.  In  consequence,  demand  for  land, 
capital  or  labor  will  be  diverted  from  other  channels 
of  demand,  and  the  prices  of  these  for  the  particular 
purpose  in  question  will  tend  to  advance.  As  the  con- 
tracts for  the  supply  of  these  factors  run  out,  the  enter- 
prisers earlier  in  the  business  must  also  pay  increased 
rents,  interest  and  wages;  and  unless  some  other  conflict- 
ing factor  enters  they  will  have  to  continue  to  pay  in- 
creased rents,  interest  and  wages  until  the  net  profits 
of  their  enterprises  come  down  to  the  rate  or  near  to 


d 


.JMLi 


818 


ECONOMICS 


IM'I 


the  rate  of  the  profits  of  other  industrial  enterprises  of 

the  same  general  character.    The  reactions  of  the  mai  kit 

us  tend  to  c(]ualize  profits  of  different  industrial  tn- 

I'ises  and  to  increase  or  to  diminish  rent,  interest  atid 

'<.ges  according  to  the  demand  and  supply  of  land, 

capital  and  labor. 


CHAPTER   III 

PROFIT    AND    WAGES 

206.  Source  of  profit.— In  the  analysis  of  the  pro- 
cesses of  production  and  distribution  which  precedes  we 
have  seen  how  the  employer,  as  employer  in  the  strict 
sense,  is  an  administrator  and  organizer.  He  is  not  a 
landowner,  he  is  not  a  capitalist  and  he  is  not  a  manual 
laborer.  He  is  a  payer  of  rent,  of  interest  and  of  wages 
to  other-persons  who  exercise  the  functions  of  which  these 
are  the  remunerations,  in  connection  with  the  enterprise 
which  he  (the  employer)  has  organized.  The  primary 
business  of  the  employer,  as  such,  is  to  continue  his  en- 
terprise and  to  adopt  the  measures  necessary  to  that  end. 
He  must  endeavor  to  obtain  from  the  products  of  the 
enterprise  enough  to  remunerate  the  various  agents  he 
has  employed— the  landowner,  the  capitalist  and  the  la- 
borer—he must  provide  the  raw  materials  by  purchase 
as  they  are  required,  he  must  provide  for  the  repairs  of 
his  machinery  as  the  parts  wear  out,  he  must  set  aside 
a  sum  for  a  depreciation  fund  to  replace  machinery  that 
may  have  been  wholly  worn  out  or  may  have  become  obso- 
lete.' When  all  of  the  charges  upon  his  income  have  been 
met  and  when  he  has  set  aside  an  amount  for  his  own 

■erv 'LT.'^n"'*"''.^''  t''»J':^'«!''.«<»>,of  machinery  from   both   causes  i, 
U^^^T^L    ?«  7?  ^""i  "'  ','^''™  '"Pavement  of  electrical  machinery, 

or  example   careful  user,  customarily  set  aside  about  1«H%  per  annum  upon 

Ln      1.°'  ""■  "'■•"■•''r'^"  ^""^'■''g  "«"  i'  "o-W  be  p,ac^aiirva°ue"e»in  i ™ 

i  X  i/v™„Tior     "'  *"  ""^  "■"  "■"'  ^^'^ " ""  '"p"^'^  '■y 

SI9 


280 


ECONOMICS 


personal  maintenance,  the  employer  may  find  that  there 
is  a  surplus  or  that  there  is  a  deficiency.  If  there  is  a 
deficiency,  it  will  be  necessary  for  him  to  economize  In 
some  way,  otherwise  the  continuity  of  his  enterijiin, 
which  is  his  first  concern,  will  be  compromised.  If  there 
is  a  surplus,  that  surplus  may  be  regarded  as  net  prr)tit. 

207.  IIow  is  profit  brought  about?— 1{  a  method  nf 
analysis  is  adopted,  by  which  the  whole  of  the  receipts 
of  the  employer,  after  he  has  paid  the  more  obvious 
charges  upon  his  total  receipts,  is  described  as  grass 
profit,  then  the  amount  according  to  the  above  analysis, 
after  the  additional  deductions  which  have  been  detailed, 
might  be  described  as  net  pn^.it.  The  question  is:  how 
does  this  profit  arise  ?  It  may  arise  from  one  or  the  other 
of  two  main  reasons.  It  arises  either  by  design  or  ad- 
ventitiously. 

Profit  is  designed  if  the  employer,  through  his  shrewd- 
ness in  making  bargains  for  land,  capital,  labor  and  raw 
materials,  and  through  shrewdness  in  making  bargains 
for  the  sale  of  his  product,  or  through  economy  in  the 
management  of  his  business,  or  by  influencing  legislation, 
enhances  his  gross  income.  It  arises  adventitiously,  if 
from  a  change  in  market  pricec  of  capital,  labor  and  raw 
materials  which  he  buys,  or  in  the  finished  product  which 
he  sells,  he  is  able  to  diminish  the  cost  of  production  of 
the  commodity  whose  manufacture  he  has  organized  or 
to  enhance  the  aggregate  price  he  obtains  for  that  com- 
modity. 

Shrewdness  and  activity  may  be  pushed  too  far,  that 
is,  farther  than  is  recognized  as  permissible  by  those 
with  whom  he  transacts  business.  For  instance,  some 
part  of  the  profit  may  be  attributed  to  a  too  sharp  bar- 
gain in  raw  material  where  the  buyer  has  taken  advan- 
tage of  economic  weakness  on  the  part  of  the  seller  to 


I'HOI  rr   AM)    WAGES 


iil 


beat  down  the  price  below  the  current  market  rate;  or 
I  a  part  may  he  attributed  to  a  too  sharp  bargain  with 
I  workmen  or  other  employees.    In  the  latter  case  the  em- 
ployer may  be  accused  of  exploiting?  them  and  of  taking 
ill  profits  what  ought  to  have  been  paid  to  them  in 
wages.    Or  he  may  be  guilty  of  adulterating  his  prr)duct, 
or  of  some  fraudulent  practice  of  a  similar  kind.    Such 
cases,  no  doubt,  occur,  but  even  if  they  were  universal, 
which  cannot  be  supposed  to  Ix;  the  case,  they  would  not 
account  for  that  portion  of  the  surplus  which  has  been 
described  as  adventitious  profit.     Against  this  adven- 
titious profit  there  must  l)e  set  adventitious  loss,  which 
may  occur  even  in  cases  where  the  most  shrewd  forecasts 
have  been  made,  and  which  may  occur  through  neg- 
ligence or  intentional  destruction  by  employees. 

208.  Profit  distribution  in  joint  stock  com  pan//. —The 
case  of  the  joint  stock  company  is,  so  far  as  the  main 
facts  are  concerned,  very  similar,  except  that  while  the 
actual  function  of  employer  is  exercised  by  salaried  of- 
ficials who  are  not  necessarily  paid  in  accordance  with  the 
yield  of  the  business  (although  if  their  activities  do  not 
result  in  the  return  anticipated,  they  may  run  risk  of 
discharge),  the  surplus,  if  any,  is  taken,  and  the  loss, 
if  any,  is  borne  by  the  shareholders.    These  shareholders 
liave  ordinarily  no  effective  share  in  the  management  of 
tiie  business.    In  the  case  of  large  companies,  where  the 
tx)dy  of  shareholders  varies  with  the  purchases  and  sales 
of  the  stock  in  the  market,  they  could  not  have  any  effec- 
tive control.    They,  therefore,  merely  add  to  the  function 
of  capitalist  (since  by  them  or  through  their  credit  the 
capital  is  supplied)  part  of  the  function  of  enterpriser, 
tile  control  or  absorption  of  the  profits  and  the  sustain- 
ing of  losses  acciTiing  in  the  enterprise. 
209.  Employer's  associations. — We  have  considered 


S22 


FX'ONOMU'S 


the  cases  of  combinatinn  of  interest  of  employers  in  jnint 
stock  companies  and  of  the  combination  of  these  i-iim- 
panies  into  trusts.  There  are,  liowever,  other  forms  nf 
combination  which  may  be  entered  into  by  individiml 
employers  without  sacrificing  their  independt-nce  as  sucli, 
Of  this  nature  are  employers'  associations  formed  for  the 
l)urpose  of  protecting  the  interests  of  their  members  In 
commori  action.  Such  associations  have  been  forriinl 
with,  in  general,  two  objects.  One  of  these  is  to  watdi 
or  promote  legislation  bearing  upon  the  interests  of  cm- 
jiloyers  or  to  observe  the  administration  of  the  liiws 
affecting  their  interests.  The  other  general  object  is 
to  take  common  measures,  where  these  arc  possibii'  (ir 
advisable,  for  the  protection  of  their  members  in  res|)«t 
to  their  relations  with  landowners,  capitalists  and  la 
Ixirers. 

Under  the  first  object  the  emploj'ers'  associations  con 
sider  alterations  in  the  bankruptcy  laws,  in  the  tariff  und 
tax  laws,  in  the  banking  laws,  in  the  immigration  laws 
and  esjjecially  in  those  laws  which  fall  into  the  category 
of  social  legislation.  Under  the  second  object,  the  ques- 
tion of  labor  disputes  is  the  most  conspicuous. 

Although  the  employers'  association  in  one  form  or 
another  preceded  the  trade  union,  it  represents  in  a  man 
ner  the  combination  of  employers  in  answer  to  the  com- 
bination of  laborers.  The  collective  bargaining  of  the 
laborers  has  as  its  counterpart  the  collective  bargain- 
ing and  the  combination  for  mutual  interests  of  the  em- 
ployers. 

210.  Superintending  labor. — In  modern  industrial 
enterprise,  the  labor  of  super'  "lendence  has  assumed  a 
large  place.  As  the  use  of  complicated  machinery  lias 
extended,  as  the  organization  of  large  bodies  of  men 
has  become  more  common  and  as  the  operations  of  tht 


rUOFIT   AND    VVAGKS 


««3 


market  (in  the  purchase  of  raw  material  and  in  the  sale 
of  the  finished  pr(jduct)  have  become  more  intricate,  the 
n'ile  of  superintending  labor  has  l)ec(>nie  more  impor- 
tant. The  technical  heads  of  departments  and  the  aux- 
iliary technical  heads  in  large  enterprises  form  now, 
ill  the  aggregate  in  all  industrial  countries,  immense 
({roups. 

Tliese  groups  occupy  a  position  intermediate  l)etween 
the  employers  and  the  manual  laborers;  and  the  judicious 
selection  of  individuals  for  the  exercise  of  the  function 
of  superintendence  has  become  a  matter  of  great  impor- 
tance. Superintending  laborers  are  generally,  although 
not  always,  educated  in  some  branch  of  technology;  they 
have  more  or  less  intellectual  interests  and  are,  therefore, 
less  exclusively  concerned  with  the  commercial  interests 
of  the  enterprise  than  their  employers.  They  are  also, 
owing  to  their  rarity  in  the  superior  ranks  of  their  re- 
spective professions,  more  independent  of  other  social 
groups  than  either  the  employer  or  the  workman. 

211.  Salaries.  —  Although  superintending  laborers 
have  in  some  cases  trade  unions  in  the  form  of  profes- 
sional societies,  these  societies  rarely  act  as  combinations 
for  the  advance  of  salaries,  because  collective  bargaining 
in  cases  of  very  divergent  technical  skill  is  not  practi- 
cable. Salaries  under  such  conditions  are  regulated 
partly  by  custom  and  partly  by  the  market  for  superin- 
tending labor. 

In  the  higher  ranks,  salaries  are  sometimes  very  high 
in  relation  to  other  professional  employments  because 
the  opportunity  of  gain  to  a  business  through  competent 
management  is  great,  and  the  possibility  of  loss  through 
incompetent  management  is  also  great.  A  large  in- 
dustrial combination  was  effected  in  the  United  States 
in  1908.    The  manager  of  the  largest  of  the  constituents 


•i 


vu 


EfONOMICS 


If: 


which  were  absork-u  by  the  new  company  was  appointtil 
managing  director  of  the  whole  at  a  salary  in  exit)i< 
of  his  previous  salary  and  for  a  period  of  five  years.  At 
the  end  of  six  months  it  became  evident  to  the  directors 
that  they  had  made  a  mistake.  They  compromised  with 
their  managing  director,  paying  him  a  large  sum  bv 
way  of  compensation  for  breach  of  contract,  and  tluv 
appointed  another  manager  at  double  the  salary  pay. 
able  in  the  previous  case.  They  found  themselves  wors. 
off  than  ever.  In  three  months  the  new  manager  in- 
volved them  in  losses  amounting  in  the  aggregate  to  ten 
times  his  salary  for  a  year.  He  was  called  upon  to  resijrn 
and  they  offered  a  still  higher  salary,  hoping  by  this 
means  eventually  to  secure  a  thoroughly  competent 
man. 

The  demands  upon  the  occupants  of  such  positions  are 
very  great.  The  qualities  which  are  necessary  are  not 
easily  acquired ;  sometimes  they  cannot  be  acquired  on 
any  terms  of  application.  Those  who  are  fortunate 
enough  to  possess  the  germ  of  the  requisite  qualities  at 
the  outset  of  their  careers,  and  who  will  devote  the  ntces- 
sary  time  to  a  study  of  the  fundamental  principles  of 
business,  may  go  far. 

212.  Education  of  superintending  laborers.^Tk 
prospect  of  great  prizes  excites  ambition  and  the  junior 
ranks  of  the  professional  class  tend  to  become  o\tr- 
crowded  and,  therefore,  to  be  underpaid.  In  the  more 
fluctuating  branches,  such  as  mining  and  railway  con- 
struction, there  may  indeed  on  occasion  be  much  unem- 
ployment in  the  professional  class,  because  owing  to  tlie 
conditions  of  scientific  specialization  it  is  not  easy  to 
pass  from  one  form  of  professional  employment  to 
other. 

The  provision  of  instruction  for  the  professional  classes 


VMIOI 

than 

conijj 

nical 

natel; 

uries 

measi 

I  so  pn 

cost  o 

In 

p«)fe! 

tlie  fe 

fessioi 

cient  t 

The  ol 

of  the 

are  rea 

leads  t 

profes! 

the  ini 

more  t 

insigni: 

gained 

numbei 

of  the  ] 

it  to  id: 

jwill. 

Immes  1 

jorganizi 

I'ight  cc 

c-i- 


PROFIT   AND    WAGES 


rittd 

At 

'tors 

H-itll 

I  by 

tllfV 

)a)- 

cirst 
ill- 
ttn 

iiKn 


m 


dumiK  U,e  pcnocJ  „    tutelage  they  n,„«t  undergo  in 
onlcr  to  ht  thtn,  for  their  work,  has  forn.e.1  a  heavy  tax 
uiK.ri  the  educafonal  instilutiorus  which  have  un.Jertaken 
this  duty.     Scientific  apparatus  is  costly  and  the  pro- 
vision of  technically  comjatent  instructors  is  more  costly 
than  in  some  other  branches  of  education.  In^caiise  of  "the 
competition  for  first-class  men  in  the  ranks  of  the  tech- 
nica  professions.    Currents  of  public  opinion  have  alter- 
Inately  run  m  favor  of  assistance  from  the  r^blic  treas- 
uries of  professional  education,   and  a«ains.   such  a 
measure  on  the  ground  that  professional  employment  is 
[so  profitable  tl.at  those  who  enter  it  should  defray  the 
cost  of  their  f>wn  professional  education. 

In  Rcneral.  a  compromise  has  been  effected.    In  the 
professional  faculties  in  most  universities  and  colleges, 
he  fees  are  m  exce«i  of  those  charged  in  the  non-pro- 
fessional schools,  although  they  are  ran."ly  if  ever  suffi- 
cient to  defray  the  whole  cost  of  professional  education. 
The  objection  that  is  sometimes  heard  that  the  interests 
of  the  professional  class  and  those  of  the  employing  class 
are  really  Identical,  and  th-t  the  educational  policy  which 
leads  to  the  increase  in  the  numbers  or  efficiency  of  the 
professional  class  at  the  public  exiK^nse  is  injurious  to 
the  influence  of  labor  is  not  vali.l.  because  labor  has 
more  to  lose  through  an  incompetent  or  numerically 
msignificant  professional  class  than  couJd  possibly  be 
fit    ^  't^^''''''  «f  it-    Moreover,  the  increase  in 
umbers  and  the  consequent  probable  proletarianisation 

!  n  wu  i^  •*'  '"*"■"'*'  ""'^^  *'"'^«  "f  l^'wr  for  good 
or  .11.  While  It  is  difficult  to  organize  labor  when  if  be- 
comes highly  specialized,  it  is  even  more  difficult  to 
organize  the  professional  classes  because  of  the  "water- 
tight compartments'"  into  which  they  tend  to  separate. 


■* 


:> 


4(1 


226 


ECONOMICS 


and  because  of  the  individualistic  habits  of  life  and 
thought  which  are  engendered  by  the  absorption  in  pro- 
fessional interests  into  which  members  of  the  professional 
class  customarily  fall. 

213.  Classes  of  manual  laborers. — All  of  the  marl<ets 
in  which  the  contributors  to  production  oflPer  their  serv- 
ices have  certain  features  in  common,  and  each  of  them 
has  certain  peculiarities.  The  labor  market  has,  in  com- 
mon with  the  market  for  capital,  the  feature  of  division 
into  sections,  which,  in  ordinary  conditions  of  the  market, 
are  non-competitive.  In  other  words,  the  law  of  sub- 
stitution does  not  normally  apply  to  the  relation  of  such 
sections. 

At  the  base,  as  it  were,  of  the  labor  market,  there  is  the 
mass  of  general  laborers,  men,  women  and  children,  not 
specially  skilled  in  any  craft  but  available  for  the  rougher 
manual  or  for  light  unskilled  labor  in  many  crafts.  In 
this  ma&i,  also,  there  are  usually  some  who  have  dropped 
into  it  from  special  handicraft,  owing  to  changes  in  the 
crafts  through  the  adoption  of  automatic  machinery  or 
otherwise,  to  their  own  inefficiency  or  defects  of  ciiar- 
acter  or  to  misfortune.  In  this  group  the  competitinii 
for  employment  is  at  all  times  considerable  and  is  some- 
times acute. 

Above  this  mass  is  a  plane  of  separate  sections— each 
containing  the  craftsmen  in  special  industries — carpen- 
ters, bricklayers,  mechanical  engineers  and  the  like. 
While  there  is  normally  more  or  less  severe  competition 
within  each  section,  there  is  little  or  no  competition  be- 
tween the  sections.  Thus,  for  example,  carpenters  do 
not  compete  for  employment  with  bricklayers,  nor  do 
watchmakers  compete  with  mechanical  engineers.  When 
trade  is  stagnant  in  the  superior  handicrafts,  craftsmen 
do  not  usually  pass  from  one  highly  skilled  occupation 


PHOFIT   AM)    WAGES 


227 


to  another,  but  if  they  find  it  impossible  to  secure  employ- 
ment in  the  trade  in  which  they  have  been  trained,  they 
drop  temporarily  into  some  inferior  employment  where 
skill  is  not  so  specialized.  At  all  times,  certain  occupa- 
tions afford  a  refuge  for  men  who,  for  various  reasons 
have  abandoned  the  trade  for  which  they  were  originally 
trained.  Thus,  men  of  all  trades  become  street  car  con- 
ductors, club  and  hotel  waiters,  teamsters,  firemen,  deck 
hands  on  steamships  and  the  like. 

In  the  sections  of  the  labor  market  in  which  specialized 
skill  is  necessary,  and  with  which  there  is  little  or  no  ex- 
ternal competition,  there  is  often  acute  competition 
within  the  section  itself.  For  example,  if  at  a  particular 
moment  there  is  a  great  demand  for  compositors  in 
Buffalo  or  in  Toronto,  which  are  important  centres  of 
the  printing  trade,  compositors  will  go  to  these  cities  to 
seek  employment.  If  they  go  in  excess  or  ii'  the  demand 
is  only  temporary,  they  will  either  have  to  go  elsewhc  e 
or  they  will  compete  with  one  another  for  employment 
even  if  the  wages  be  uniform. 

214.  Uniform  isMges.  — The  uniformity  of  wages 
which  has  l)een  imposed  by  some  trade  unions  and  de- 
liberately adopted  as  a  policy  by  some  employers,  has 
mitigated  this  sectional  competition  and  altered  its  char- 
acter but  has  not  removed  it.  An  important  mitigation 
has  also  occurred  in  those  trades  in  which  the  number 
of  apprentices  is  limited  by  agreement  between  the  em- 
ployers and  their  men.  These  measures  have  un- 
doubtedly led  to  greater  care  in  selection  of  men  by  em- 
ployers. If  they  must  pay  equal  wages  to  efficient  and 
inefficient  workmen,  they  will  endeavor  to  eliminate  the 
inefficient,  and  if  they  can  have  only  a  few  apprentices, 
there  must  be  no  idle  apprentices  among  them.  It  is 
probable  that  through  the  influence  of  trade  unions  in 


228 


ECONOMICS 


this  direction  there  has  been  some  increase  in  industrial 
efficipncy. 

On  the  other  hand,  it  might  be  argued  that  tliesi 
measures  have  not  tended  to  humanize  the  relations  lit- 
tween  workmen  and  their  employers ;  and  that  the  uni- 
form wage  results  in  the  dismissal  of  the  workman  s.^ 
soon  as  he  is  past  his  prime,  while  otherwise  he  might  be 
continued  at  a  reduced  wage. 

213.  Old  age  pensions. — The  adoption  of  a  unifunn 
wage  seems  to  have  as  inevitable  consequence  the  estab- 
lishment of  old  age  pensions,  either  by  separate  indus- 
tries, groups  of  industries,  or  by  the  State;  unless  it  is 
to  be  supposed  that  the  uniform  wage  during  the  years 
of  labor  is  sufficient  to  enable  the  normal  workman  to 
save  enough  to  keep  himself  and  his  family  after  he  lia: 
ceased  to  be  worth  the  wages  earned  by  him  in  his  prime. 
It  is  true,  however,  that  there  are  many  industries  in 
which  tie  years  of  activity  are  so  f»w  that  adequate 
saving  is  impossible,  ai.d  an  old  aj  pension  system, 
which  would  be  applicable  in  such  cases,  would  require 
to  be  given  at  so  early  an  age  that  it  could  not  be  uni- 
versally applied.  The  question  whether  recipients  iii 
pensions  should  be  encouraged  or  even  permitted  to  wnrii 
has  been  much  discussed  in  Great  Britain  since  the  pass- 
ing of  the  Old  Age  Pensions  Act. 

The  problem  may  be  put  in  the  form  of  a  dilemma. 
If  the  pensioners  are  allowed  to  work,  they  compete  in 
the  labor  market  and  reduce  wages;  if  they  are  not  al 
lowed  to  work,  the  national  aggregate  is  less  by  tiie 
amount  of  their  product  than  it  would  have  been  had 
they  been  permitted  to  work.  It  is  fairly  obvious  that 
the  balance  of  advantage  lies  in  allowing  pensioners  to 
earn  wages  if  they  can.  There  is  another  consideration 
it  is  a  doubtful  policy  to  impose  a  direct  penalty  in  the 


PROFIT    A\U    WAGES 


229 


form  of  compulsory  idleness  upon  those  who  have  a 
pension  from  the  State. 

216.  Labor  organizations.— In  those  trades  in  which 
specialized  skill  is  not  requisite,  or  in  which  the  requisite 
skill  may  readily  be  acquired  in  a  short  time,  the  compe- 
tition is  most  acute,  the  changes  of  personnel  in  a  work- 
shop or  factory  most  frequent  and  labor  combination  in 
a  trade  union  i.iost  difficult.  Spasmodic  attempts  are 
made  from  time  to  time  to  organize  garment  workers 
(men  and  women ),  workers  in  box  factories  and  the  like. 
Sometimes  the  activity  of  the  organizers  has  resulted  in 
strikes  and  in  the  improvement  of  the  conditions  of  la- 
bor or  in  increase  cf  wages;  but  usually  the  casual  and 
fluctuating  character  of  these  occupations  and  the  diver- 
sity of  nationalities  have  rendered  permanent  organiza- 
tion of  the  workers  extremely  difficult. 

The  system  of  an  uniform  wage  which  is  indispensable 
in  the  maintenance  of  sectional  trade  unionism  cannot 
be  applied  over  the  whole  field  of  industrj%  and  is,  there- 
fore, not  an  essential  feature  in  a  general  labor  organ- 
ization. Such  organization  has  indeed  usually  as  its 
unifying  influence  some  political  programme  because  of 
tile  variation  in  economic  programmes  which  exists  in 
the  ranks  of  labor. 

217.  Difficulty  of  transporting  labor.— There  are  cer- 
tain characteristics  which  are  peculiar  to  the  labor  mar- 
ket. For  example,  while  capital  in  the  form  of  con- 
sumable commodities,  or  otherwise,  is  more  or  less  mobile, 
laiwr  is  not  very  readily  transported.  This  characteris- 
tic varies,  however,  in  different  races  and  under  different 
conditions.  There  is,  for  example,  a  strong  inclination 
toward  migratory  habits  among  the  Russian  people. 
The  same  inclination  exists,  though  not  to  the  same  de- 
Rree,  among  people  of  German  origin;  the  French,  on 


230 


ECONOMICS 


the  other  hand,  are  reluctant  to  move.  In  many  differ- 
ent parts  of  the  world  there  are  periodical  niigratidb 
of  great  magnitude.  About  one  million  farm  laborers 
migrate  during  the  Russian  harvest  season,  going  south- 
ward from  Central  Russia  and  then  travelling  nortiiwarvl 
harvesting  as  they  go,  toward  the  regions  of  the  latii 
harvests.  Similarly  vast  numbers  of  Italian  peasants 
migrate  to  the  Riviera  for  harvesting,  and  great  num- 
bers of  Irish  laborers  cross  annually  to  Scotland  for  the 
same  purpose.  So,  also,  farm  laborers  go  from  the  mari- 
time provinces  and  from  Ontario  to  the  prairie  pmv- 
inces  of  Canada  for  harvest,  returning  when  harvest  is 
over.    In  each  of  these  cases  distance  is  no  barrier. 

Apart  from  temporary  migrations,  there  are  the  great 
permanent  movements  of  peoples  of  which  the  settle- 
ment by  Europeans  of  the  two  Americas  and  of  Austral- 
asia are  the  most  conspicuous  modern  examples.  People 
even  migrate  from  one  new  country  to  another.  It  is 
a  matter  of  frequent  observation  that  people  who  have 
with  difficulty  once  uprooted  themselves  from  a  long  ac- 
customed home  will  have  little  hesitation  in  migratiiiij 
a  second  time  if  they  think  it  advisable  to  do  so.  Tims 
groups  of  German  and  other  immigrants,  both  in  the 
United  States  and  in  Canada,  have  emigrated  and  set- 
tled ill  the  eastern  portions  of  these  countries  and  tiieii 
after  an  interval  have  migrated  westward  or  nortliwanl. 

Nor  does  the  extent  of  migration,  except  across  the 
Atlantic  Ocean,  appear  to  have  increased  materially 
on  account  of  improved  means  of  communication. 
Throughout  Europe,  in  the  early  middle  age,  the  great 
difficulty  lay  in  preventing  people  from  wandering 
about,  not  in  inducing  mobility.  Adam  Smith's  dictmn 
that  the  man  oi"  aii  baggage  is  the  most  difficult  to  trans- 
port was  really  true  only  of  the  Scots  and  the  French, 


PROFIT   AND   WAGES  831 

the  only  two  peoples  with  whom  Adam  Smith  was  fa- 
miliar, and  since  his  day  it  cannot  be  said  to  be  true  of 
Scotchmen. 

This  relatively  great  mobility  of  labor  is,  however, 
qualified  by  the  circumstance  that  while  capital  is,  as 
a  rule,  moved  from  one  place  to  another  by  persons 
skilled  in  such  movements,  labor  is  frequently  moved  in 
great  masses  without  intelligent  direction.  In  northern 
countries,  the  harvest  is  short,  the  information  about  de- 
mand for  labor  is  tardily  distributed  and  it  therefore  fre- 
quently occurs  that  there  is  abundance  of  labor  in  one 
place  while  in  another  at  no  great  distance  there  is 
scarcity.  Sometimes  laborers  in  their  own  interest  re- 
frain from  communicating  to  others  the  fact  of  demand 
for  labor,  and  the  absence  of  organization  among  farm- 
ers prevents  them  from  procuring  even  readily  available 
supplies.  This  is  particularly  true  of  south  eastern 
Russia  during  harvest  time  and  il  is  to  some  extent  true 
of  the  prairie  provinces  of  Canada.  Mobility  or  the 
aosence  of  it  may  thus  under  certain  conditions  affect 
the  rate  of  wages  over  a  wide  region. 

218.  Labor  cannot  be  stored.~The  second  important 
special  consideration  affecting  labor  in  its  own  market 
IS  that  it  is  in  the  position  of  a  perishable  commodity. 
It  must  be  sold  when  it  is  available,  otherwise  it  is  irre- 
trievably lost.  If  there  were  any  means  of  storing  la- 
bor force  in  such  a  way  that  it  might  afterwards  be  liber- 
ated in  any  desired  direction,  the  position  of  the  laborer 
might  be  materially  altered,  provided  he  had  himself 
control  of  the  ^eser^'oi^  in  which  his  labor  was  stored. 
The  falling  power  of  water  is  stored  in  this  way,  so  also 
■s  electricity  in  electrical  accumulators;  but  no  inven- 
tion relating  to  labor  storage  has  yet  been  promulgated. 
Labor  may  be  stored  in  the  sense  of  being  applied  to 


W^ 


332 


ECONOMICS 


production  of  utilities  which  are  kept  in  reserve,  but  this 
is  not  the  same  thing  as  storing  the  force  which  may  Ik; 
used  at  will  at  any  time  upon  the  production  of  iiny 
utility. 

In  the  absence  of  an  automatic  mechanism  of  the  kind 
suggested,  the  laborer  must  sell  his  labor,  even  in  ujj 
overstocked  labor  market,  because  he  must  live.  He 
may  get  for  his  labor  barely  enough  to  enable  him  to 
exist;  but  "half  a  loaf  is  better  than  no  bread."  This 
consideration  is  based  upon  the  assumption,  which  in- 
deed is  very  usually  the  fact,  that  the  laborer  is  a  laborer 
pure  and  simple ;  that  is,  that  he  is  not  in  any  sense  either 
a  landowner  or  a  capitalist.  It  is  assumed,  further,  tiiat 
he  is  destitute  of  credit.  This,  however,  is  not  always 
the  case.  The  extent  to  which  the  small  retail  dealers 
relieve  distress  during  times  of  crisis  by  extension  of 
credit  is  very  remarkable,  and  it  accounts  for  the  patron- 
age of  the  large  retail  cash  stores  by  the  middle  class 
rather  than  by  the  working  class.  The  Truck  system, 
a  system  by  which  the  employer  supplies  his  workmen 
with  the  commodities  they  consimie,  is  very  prevalent 
in  the  United  States.  It  has  long  been  prohibited  by 
law  in  Great  Britain. 

Such  being  the  case,  the  laborer  is  an  urgent  buyer 
of  the  means  of  life  and  he  has  no  resources  to  offer  in 
exchange  excepting  the  labor  of  his  head  and  his  muscle. 
While,  however,  the  laborer,  as  laborer,  is  in  this  posi- 
tion, he  is  not  always  laborer  pure  and  simple.  The  elite 
of  labor  in  all  countries  has  its  savings  and  investments 
in  public  securities  or  otherwise,  yet  it  cannot  be  denied 
that  the  mass  of  the  proletariat  or  landless  working 
class — especially  in  Europe — is  in  the  position  charac- 
teristic of  the  laborer  as  such. 


CHAPPTER   IV 

RATE    OF    WAGES 

219.  Value  of  product!,  and  value  of  waee»—We 
must  now  ask  what  are  the  causes  which,  in  gener"al,  de- 
termme  the  rates  of  wages,  and  what  are  the  causes 
which,  in  general,  determine  the  share  of  the  national 
aggregate  product  which  passes  into  the  hands  of  the 
laborer  The  causes  which  .letermine  in  any  market  the 
value  of  the  pro<lucts  which  are  brought  into  it  for  ex- 
change are,  as  we  have  seen,  very  complicated.  Each 
of  these  causes  acts  upon  the  labor  market  through  the 
pr.««  of  commodities  and  through  the  demand  for  them. 

„„f   ,1  ."■  ""'^  '''"^  ^'"ges.-WMe  the  workman 

naturally  considers  his  wages  high  or  low  in  respect  to 
the  pecuniary  or  nominal  amount  of  them,  the  spending 
^wer  wh^h  his  wages  afford  constitutes  their  real 
amount.  His  wages  are  thus  really  high  or  low  in  re- 
pect  o  the  quantity  of  food,  clothing  and  shelter  whil 
they  enable  him  to  acquire.  Thus  the  difference  in 
wages  at  different  periods  or  at  different  places  cannot 

Zi  nJ  t.  T  '"  """"^y'  •'"*  ^'^^  th^  purchasing 

m^ot  that  money  in  the  commodities  respectively  con- 

lonJi^r  "'"'"^'''  *'  '"'^'  °^  "  C'"'"^'*  «'°Me  are  at 
In^nod  when  nee  is  4  cents  per  pound,  and  at  another 
equivalent  to  138  pounds  of  rice  when  rice  is  3  cents 
223 


SI 


834 


IXOXOMICS 


per  pound,  Iiis  real  wages,  provided  he  consumes  ni.ly 
rice,  have  advanced  88  per  cent.,  although  his  nouiiiial 
wage  may  remain  unaltered. 

The  bare  statement  that  urban  wages  are  higher  tliaii 
rural  wages  is  insufficient  without  the  explanation  nf 
the  difference  between  the  prices  of  food,  clothing  and 
shelter  in  the  respective  areas.  So,  also,  would  be  tiie 
statement  that  wages  have  risen  during  the  past  fifty 
years  unless  we  are  informed  of  the  prices  of  the  cdiu- 
modifies  in  normal  consumption,  and  of  the  rates  of 
rents  for  house  accommodation  in  relation  to  tlie  normal 
rates  of  wages  during  the  period.  A  curve  showing  the 
rates  of  wages  thus  means  nothing  unless  it  is  accom- 
panied by  a  curve  showing  the  prices  of  the  commoditits 
which  enter  into  the  consumption  of  the  wage  earners 
whose  wages  constitute  the  data  from  which  the  curve 
is  drawn. 

221.  Efficiency  of  laborer. — The  determination  of 
wages  may  be  looked  upon  from  two  points  of  view. 
From  the  first  point  of  view  we  may  consider  the  rate 
of  wages  by  the  week  or  month  or  we  may  consider  the 
total  amount  of  wages  for  the  year,  idle  time  due  to 
sickness,  holidays,  unemployment,  etc.,  being  accounted 
for.  From  the  second  point  of  view  we  may  consider  not 
the  rates  or  amounts  of  wages  in  individual  trades,  but 
the  wage  bill  of  the  wage  earners  as  a  whole,  regarded 
as  a  portion  of  the  "national"  or  "social  dividen  i." 

Under  all  conditions,  the  efficiency  of  the  laborer 
varies  widely,  and  uniformity  of  wage  does  not  by  any 
means  imply  uniformity  of  return  to  labor  in  prodi.- 
tion.  If  wages  nominal  or  real  were  fixed  arbitrarily 
by  public  authority  at  a  uniform  rate,  the  method  of 
determining  wages  would  appear  to  be  simple,  yet  the 
return  to  labor  in  production  of  one  group  of  persons 


HATE    OF    WAGES  233 

compared  with  that  of  another  would  exhibit  wide  varia- 
tions. Under  normal  conditions  of  production,  the  pro- 
ficiency of  one  group  compensates  for  the  deficiency  of 
another.  •' 

We  may  regard  the  services  of  labor  in  production  as 
being  rendered  by  groups  of  varying  efficiency.  The 
groups  of  the  highest  efficiency  normally  move  in  a  rare- 
fied competitive  atmosphere,  and  when  they  sell  their 
labor,  they  have,  therefore,  an  advantage  over  those  of 
inferior  efficiency  who  encounter  more  numerous  com- 
petitors. Provided  his  efficiency  is  recognized  by  those 
who  are  in  a  position  to  employ  him,  and  provided  also 
there  are  no  radical  faults  of  character  or  habits  which 
compromise  his  efficiency,  the  highly  efficient  worker  in 
any  field  .s  m  the  position  of  a  quasi-monopolist.  If 
liere  is  demand  for  his  services  he  can  drive  a  favorable 
bargam,  although  if  there  is  no  demand  for  the  par- 
ticular variety  of  efficiency  which  he  possesses,  it  may 
remain  unutilized.  ' 

At  the  other  end  of  the  scale  is  the  least  efficient  group. 
Such  a  group  ,s  employed  when  industry  is  so  brisk  that 
every  willing  hand  must  be  enlisted  in  its  service.    When 
for  any  reason,  industry  becomes  less  active  and  em- 
plo.vers  begin  to  discharge  workmen,  the  members  of 
the  least  efficient  group  are  normally  the  first  to  be  dis- 
charged.   During  periods  of  industrial  fluctuation  -his 
group  oscillates  between  employment  and  unemploy- 
ment and  between  a  self-sustaining  status  and  the  status 
ot  recipients  of  public  or  private  charity.     Whatever 
may  be  the  state  of  industry  and  whatever  the  period, 
here  ,s  always  such  a  group,  and  this  group  in  this  posi- 
t.on  may  therefore  be  regarded  as  the  marginal  group 
-that  ,s  to  say,  that  group  whose  utility  as  productive 
I  agents  is  the  least  it  is  worth  while  to  use 


836 


ECONOMICS 


222.  Marginal  wages.— Over  the  field  of  industry 
there  are  numerous  groups  of  this  description,  corre- 
sponding with  the  number  of  occupations.  The  hilior 
of  these  groups  is  marginal  labor.  To  put  the  matter 
concretely,  an  employer  knows  when  he  employs  a  worlv- 
man  that  he  will  get  at  least  the  value  in  labor  that  is 
represented  by  this  margin;  therefore,  he  will  be  williiiji 
to  pay  a  rate  of  wages  equivalent  to  that  value. 

There  will  always  be  a  marginal  wage  as  there  is 
always  a  marginal  group,  and  this  marginal  wage  will 
be  just  sufficient  to  attract  into  the  industry  the  nunikr 
required  in  it  at  any  particular  moment.  If,  in  tun- 
sequence  of  increased  demand  or  otherwise,  the  price 
of  a  finished  product  advances,  the  manufacturers  of  tliat 
product  will  increase  its  production  and  they  will  there- 
fore require  more  workmen.  The  reserve  of  labor  may 
be,  however,  under  such  conditions  low,  and  the  supply 
price  of  labor  may  have  advanced  in  consequence.  But 
the  demand  price  has  advanced  also  because  our  em- 
ployer is  obtaining  a  higher  price  for  his  product  and 
the  marginal  worth  of  labor  to  him  has  risen.  He  is 
thus  able  to  meet  the  demand  for  higher  wages  from 
the  workmen  whom  he  already  has  in  his  employment 
and  from  recruits  whom  he  may  wish  to  employ. 

It  must  be  observed,  however,  that  if  any  of  the  sup- 
ply prices  of  other  elements  of  production  should  ad- 
vance, the  power  to  give  an  advance  to  any  one  of  them 
would  be  Limited  by  the  urgency  of  the  claims  of  others. 
Thus,  an  advance  in  the  prices  of  the  raw  materials 
might  render  an  increase  in  production  of  the  finished 
material  uneconomical  in  spite  of  advance  in  its  market 
price.  The  demand  for  labor  might  thus  be  checked  and 
the  marginal  value  of  labor  might  not  be  altered  in  spite 
of  the  increase  of  the  price  of  the  finished  product. 


BATE   OF    WAGES 


837 


228.  Demand  and  mtppli/  prices  of  Zafcon— Although 
the  rate  of  wages  paid  to  all  employees  need  not  be  at 
the  minimum  rate,  the  demand  price  of  labor  will  follow 
in  its  fluctuations  the  marginal  value  of  labor  and  will, 
ill  general,  approximate  it.  The  demand  price  of  all  the 
lalmr  in  a  factory  cannot  exceed  tl.L  total  value  of  all  the 
labor,  and  that  total  value  cannot  be  ascertained  except 
by  the  process  of  estimating  the  value  of  the  labor  of  the 
last  and  least  efficient  worker  in  each  particular  group. 

Thus,  if  there  were  no  trade  union  regulation  impos- 
ing uniformity  of  wages,  there  would  still  be  a  tendency 
to  uniformity — at  all  events  among  new  employees — 
because  of  the  estimate  which  the  employer  places  upon 
the  value  of  the  labor  of  the  last  increment  which  he 
adds  to  his  labor  force. 

The  demand  price  of  labor  is  thus  that  amount  which 
will  be  just  worth  the  while  of  the  employer  to  pay  to 
the  last  man  whom  it  is  worth  while  to  employ  in  a 
particular  kind  of  labor,  and  in  the  then  condition  of 
the  market.  The  supply  price  of  labor  is  the  price 
which,  from  their  point  of  view,  the  laborers  fix  as  their 
estimate  of  the  value  of  their  labor,  and,  so  far  as  this 
supply  price  is  coincident  with  the  demand  price,  labor 
will  hire  itself  and  be  hired.  When  the  supply  price 
rises  because  of  the  scarcity  of  laborers  or  otherwise, 
the  demand  price  may  or  may  not  rise,  because  the  value 
of  the  labor  may  or  may  not  ha\e  risen;  but  if  the  de- 
mand price  rises,  it  will,  of  course,  draw  up  the  supply 
price  after  it.  Although  all  wages  are  not  at  the  mar- 
gin, the  competition  of  wage  earners  seeking  employ- 
ment, whenever  such  competition  is  effective,  will  tend 
to  equalize  wages  in  any  particular  industry;  and  the 
competition  of  employers  for  labor,  where  this  is  effec- 
tive, will  have  the  same  result  in  all  industries,  subject 


m 


m 


838 


KCONO.MU'S 


to  the  qualifications  of  comiictitioii  forniei'ly  mentioncil. 

Tlic  rate  of  wa^c!*  apix-urM  tliuit  to  dc'iKixl  upon  tlic 
productivity  of  labor;  but  this  prmhiotivity  will  dcptiid 
in  turn  upon  the  value  of  the  services  of  labor  as  esti- 
mated in  the  lalmr  market,  rencted  u]>on,  as  this  markil 
is,  by  the  market  for  comnnxlities.  The  rate  of  v/agn 
is  determined  by  means  of  a  burffain  between  the  tin- 
ployer  and  the  wajje  earner;  but  the  terms  upon  which 
this  bargain  is  made,  dei>eiid  upon  the  conditions  whicii 
have  been  described. 

224.  Labor  re»erve». — The  above  theory  of  the  de- 
termination of  wages  rests  upon  the  assumption  of  free 
competition  between  laborer  and  lalK)rcr  for  employnitnt 
and  between  employer  and  employer  for  laborers.  C'tr- 
tain  qualifications  must  be  made  upon  this  assumption. 

Competition  is  not  always  t)ervasive.  Wherever  llie 
laborer  can  place  a  reserve  price  upon  his  labor  and  can 
work  or  refrain  from  working,  he  is  in  the  position  of 
withdrawing  from  competition  with  fellow  applicants 
for  a  wage  earning  position  if  he  choose  to  do  so.  Tiiis 
reserve  may  either  be  possessed  by  himself,  in  whicli 
case  he  is  to  that  extent  a  capitalist,  or  the  reser\-e  may 
exist  in  the  form  of  another  kind  of  occupation  to  which 
it  is  possible  for  him,  on  occasion,  to  turn. 

The  occupation  of  independent  prospector,  which  in- 
volves the  existence  of  such  a  resen'e,  was  resorted  to 
in  British  Columbia  to  such  an  extent  that  in  1896  and 
1897  it  was  exceedingly  difficult  to  procure  miners,  and 
they  could  not  be  procured  for  a  lower  rate  than  the 
lowest  rate  at  which  o  prospector  might  be  "grubstaked" 
or  supplied  with  the  means  of  life  by  a  speculator. 
Similarly,  the  existence  of  available  homestead  lands 
in  the  northwest  of  Canada,  which  may  be  taken  up 
on  very  slender  capital,  acts  as  a  reserve  in  respect  to 


HATK   Ol'    \V.\(ii;s 


8^0 


»atfcs.  especially  in  the  nei«hl,„r|„H„l  „C  ll.c  hon.estcad 
lands.  A  lalK.rer  will  „„f  w.„k  for  unvoiic  else  fr.r  kss 
than  he  thinks  he  «,„|,|  ,„„kt.  |„,  |,i,„,,.,f^  ,(  ,,^.  ^^.^^ 
working  iii)„n  his  own  liin.l  ohtainnl  wiatiiitously. 

Another  example  of  the  same  «.n(lition  is  the  prac- 
tKc.  common  in  the  northwest  of  Canada,  of  home- 
mlers  hiring  themselves  out  for  railway  eonstniction 
or  for  work  upon  farms  other  than  theii^  own.  The.se 
men  dearly  have  a  reserve  priee  upon  their  lab<,r.  A 
case  of  this  kind  in  eom.eetion  with  railway  constructioo 
in  western  C'ana.la.  in  whieh  a  Kioup  of  M.me  five  hn„. 

<lred  homesteaders  were  eoneeri.ed.  resulted  in  a  Iw ..„ 

in  respect  to  a  suh-eontraet  kin^  made  between  li!  ,„ 
and  the  contractor  for  the  section  which  pas.sed  t|,,„„„h 
their  land.  This  ImrKain  left  the  c-ontraetor  no  „,oHr 
whatever  The  liomesteaders  knew  that  they  had  to  l« 
employed;  they  were  indifferent  whether  they  were  en, 
{.loyed  ,,r  not,  a,.d  they,  therefore,  obtained  the  maxi- 
nmn.  price  for  their  lalx^r-obtained.  in  fact,  the  whole 
ot  the  value  of  the  product,  so  far  as  the  contractor  was 
concerned. 

as3.  Kfcct  of  pop„l„ti„„.-Whik  the  laborer  is  in 
a  chrome  condition  of  urfjency  as  a  seller  of  labor,  there 
are  occasions  when  the  demand  for  labor  is  such  that 

here  ,s  a  very  small  surplus  of  unemployed  laborers. 
Wages  under  these  circumstances  tend  to  advance.  On 
the  other  hand,  the  existence  of  a  large  reserve  of  un- 
employed laborers  depresses  wages  and  contributes  to 
spasniodic  employment.    Thus,  when  the  population  of 

country  IS  growing  rapidly,  and  when,  therefore,  the 
ialH.r  market  ,s  continually  subjected  to  fresh  acces- 
sions, the  reserve  of  labor  increases,- unless  the  demand 
for  abor  for  mdustrial  enterprises  increases  in  the  same 
relative  degree  as  the  population. 


:ii 


ir 


240 


ECONOMICS 


If,  owing  to  the  increase  of  population,  the  resene  of 
labor  increases,  wages  will  not  necessarily  fall,  notwith- 
standing the  increase  of  population,  nor  will  wages  rise 
in  consequence  of  a  diminution  of  population,  unless  tiie 
demand  for  labor  varies. 

Wages  may  also  rise  or  fall  from  causes  altogetlur 
apart  from  movements  of  population.  In  Great  Britain 
wages  advanced  with  great  rapidity  in  the  years  be- 
tween 1870  and  1874  although  the  population  was  in- 
creasing at  its  normal  rate.  Germany  has  witnessed, 
during  recent  years,  a  remarkable  growth  of  population 
simultaneously  with  an  advance  of  wages. 

Mere  scantiness  of  population  does  not  imply  high 
wages,  otherwise  wages  would  be  higher  in  the  rural 
districts  than  in  the  towns,  which  is  contrary  to  the  fact. 
Nor  does  mere  density  of  population  necessarily  imply 
low  wages.  Wages,  therefore,  may  be  said  to  depend 
upon  the  relation  between  the  supply  of  and  the  demand 
for  labor  at  a  particular  time  and  place;  and  the  amount 
of  supply  will  depend  upon  the  population  in  g-iK  al, 
primarily,  but  secondarily  upon  the  reserve  of  labor  or 
the  amount  of  labor  seeking  employment.  The  de- 
mand for  labor  will  emerge  from  the  conditions  pro- 
duced by  the  numerous  causes  which  have  already  been 
detailed  as  influencing  the  fluctuations  of  prices.  The 
amount  of  the  reserve  of  labor,  or  the  available  supply. 
will  depend  primarily  upon  the  economic  position  of  the 
people,  and  secondarily  upon  the  influence  of  demand. 
226.  Other  influences  on  labor  reserves. — In  a  coun- 
try where  free  grants  of  land  are  available  and  are 
susceptible  of  cultivation  with  little  or  no  capital,  the 
reserve  of  labor  will  consist  of  those  who  are  unfitted 
for  or  who  are  reluctant  to  undertake  the  labor  of  agri- 
culture.   If  there  are  relatively  few  of  these,  or  if  tiiere 


RATK    OF    WAGES 


241 


are  none  of  them  and  tliere  is  no  reserve,  wages  will  de- 
pend almost  exclusively  upon  the  state  of  demand  for 
labor  for  mdustrial  purposes.  If  such  demand  is  urgent, 
wages  will  be  high. 

In  new  countries  this  may  be  said  to  be  a  usual  con- 
dition. There  the  rese^^-e  is  low  because  agriculture  and 
other  extractive  industries  offer  advantages  which  com- 
pete with  those  offered  by  industrial  employment. 

There  is  another  case  in  which  wages  may  be  regarded 
as  high  Such,  for  example,  is  the  case  of  Iceland, 
where  there  is  no  industrial  development  and  where  the 
people  are  wholly  occupied  in  attending  to  their  own 
farms.  There  is  no  reserve  of  labor  and  no  organized 
demand  for  it  for  industrial  purposes.  To  induce  an 
Icelander,  therefore,  to  leave  his  customary  occupation 
for  personal  service  or  the  like,  requires  an  offer  of  wages 
relatively  high  when  the  course  of  prices  in  the  island 
IS  considered.  Thus  the  rate  of  daily  wages  for  a  guide, 
for  instance,  amounts  to  about  the  equivalent  of  the 
value  of  three  sheep. 

If  there  is  no  customary  demand  for  labor,  or  if  this 
demand  is  small,  there  will  be  no  inducement  for  the 
presence  of  a  -eser^-e  of  labor  seeking  employment  and, 
therefore,  local  wages  will  be  high. 

It  is  true  that  the  rate  of  wages  is  either  customary 
or  is  the  result  of  an  individual  or  collective  bargain- 
but  the  conditions  under  which  this  bargain  is  made  must 
determine  the  character  of  it.  If  the  competition  be- 
tween workers  seeking  employment  is  keen,  the  ad- 
vantage in  the  bargain  will,  other  things  being  equal, 
lie  on  the  side  of  the  employer.  If  competition  among 
employers  is  keen,  other  things  being  equal,  the  ad- 
'antage  will  lie  on  the  side  of  the  workers. 
?27.  Minimum  and  majrimum  wages.— There  is  how- 


f 


S42 


ECONOMICS 


ever,  a  superior  limit  above  which,  under  normal  con- 
ditions, wages  cannot  rise.  This  limit  is  determined  by 
the  necessity  of  maintaining  the  reserves  of  capital  for 
the  continuity  of  production.  And  there  is  an  inferior 
limit  of  wages  which  is  determined  by  a  similar  condi- 
tion, applied  to  the  reserves  of  labor.  The  difference 
between  the  highest  possible  amount  which  may  be  paid 
in  wages,  and  yet  continue  the  production  in  the  tlien 
state  of  the  market  for  land  and  for  capital,  and  the 
lowest  possible  amount  which  may  be  paid  in  wages,  and 
yet  continue  the  supply  of  labor  necessary  for  produc- 
tion in  the  then  state  of  demand  in  the  market  for  goods, 
constitutes  the  range  within  which  disputes  about 
wages  can  take  place.  It  is  the  interest  of  the  workers 
to  obtain  as  much  of  this  margin  as  they  can,  it  is  tlie 
interest  of  employers  to  retain  as  mucli  of  it  as  they 
can.  In  both  cases  continuity — in  one  case,  of  employ- 
ment, and  in  the  other  case,  of  production — lies  in  the 
background  as  an  indispensable  condition. 

It  is  clear  that  the  aggregate  amount  of  this  margin 
will  depend  upon  the  productivity  of  productive  enter- 
prises taken  in  the  mass.  If,  for  any  reason,  the  pro- 
ductivity is  inferior,  as  in  the  case  of  an  inferior  harvest, 
there  will  be  less  to  distribute  than  if  the  productivity 
were  high,  as  in  an  abundant  harvest.  Moreover,  if  the 
product  is  small,  there  must  be  a  more  acute  struggle 
over  it  than  if  the  product  is  large.  When  industry  is 
highly  productive,  when  demand  is  brisk  and  the  value 
of  the  product  is  being  enhanced  by  advancing  prices. 
there  is  less  reluctance  to  increase  wages  than  there  is 
to  maintain  them  when  prices  are  falling. 

From  the  social  point  of  view  it  is,  then,  important 
that  production  should  be  as  great  as  possible — not 
any  individual  products  but  in  due  proportions — in  siicii 


HATE    OF   WAGES 


243 


a  manner  as  to  supply  the  largest  aggregate  of  utilities; 

in  order  that,  on  the  one  hand,  the  productive  process 
may  be  continued  smoothly  and  that,  on  the  other,  those 
who  contribute  to  it  should  be  enabled  to  continue  at 
their  maximum  efficiency. 

228.  Labor  not  sole  determining  factor  in  value  of 
product.— While  all  products  are  the  products  of  labor, 
the  value  of  the  products  is  not  due  to  that  fact.    I  may 
spend  a  month  in  making  an  object  which  I  regard  as 
of  high  utility  and  to  which  I  therefore  attach  a  high 
value;  but  I  may  be  wholly  unable  to  find  anyone  who 
agrees  with  me  either  about  its  utility  or  its  value.    This 
is  especially  obvious  in  the  case  of  works  of  art,  about 
the  value  of  which  the  widest  difference  of  opinion  fre- 
quently exists.    Nor  does  their  value,  as  determined  by 
connoisseurs  or  as  discovered  at  their  sale  by  auction 
under  conditions    of    competition,    depend    upon    the 
amount  of  labor  which  their  production  hag  involved 
A  picture  by  Raphael  fetches  a  high  price  in  the  mar- 
icet,  not  because  Raphael  !  bored  upon  it  for  so  many 
days,  a  detail  which  caiin.,;  possibly  be  ku<m„,  no"r 
merely  because  the  paintin-8  ^)y  Raphael  are  few  and 
cannot  be  increased  in  number,  !><»■  merely  Ijecatiw-  -rf 
the  high  artistic  excellence  ,4  tl>e  example  in  (|uestion, 
nor  because  Raj>h«el  was  <>w  of  the  grt-M  «gures  of  the 
RtnaisMnce:  Imt  because  for  these  or,  pertiajw,  for  (pike 
thtr  reawms,  many  private  collectors  and  the  directors 
of  many  pu»>Hc  museums  who  have  the  m^ans  to  gratify 
their  tastes,  otnire  to  add  a  picture  by  Raphael  to  thei'r 
"illcptioiis. 

Ir.numerablc  painters  whose  skill  was  probably  not 
tfreatly  inferior  to  Raphael's  and  who,  perhaps,  labored 
iM«ritely  I<mger  upon  their  works  than  he  did,  have  been 
totally  forgotten  and  their  works  have  been  lost  be- 


344 


ECONOMICS 


cause  the  generation  to  which  they  belonged  did  not 
value  them  or  thuik  them  worth  preserving.  There  an, 
no  doubt,  at  the  present  moment  unknown  geniusts 
whose  works,  worth  next  to  nothing  in  the  market  now, 
will  be  hotly  competed  for  by  excited  connoisseurs  whin 
some  day  a  critic  in  whose  judgment  they  have  confideuct 
pronounces  a  favorable  opinion  upon  them.  It  will  then 
be  a  question  to  whom  the  value  i»  to  be  credited — to  tin. 
artist  or  to  the  critic 

229.  Whif  MHnbntirm  i*  not  ha*ed  upon  product.- 
That  the  laborer  adds  value  to  the  product  upon  wliicli 
he  labors  is,  in  the  nornial  case,  although  not  in  all  ca^ts. 
true:  but  what  the  amount  of  that  value  is,  is  not  de- 
termined and  cannot  be  determined  until  the  product 
passes  into  the  market  where  it  is  eventually  valued  ami 
sold,  and  e\en  when  this  takes  place,  the  value  which  is 
determined  is  the  value  of  the  commodity  as  a  whole: 
the  increments  of  value  are  not  indicated.  In  those  cases 
in  which  the  profluction  occupies  a  long  time  and  in 
which  the  labor  of  many  hands  is  employed  as  in  build- 
ing an  ocean  liner,  for  example,  the  value  of  the  finished 
product  as  a  whole  affords  no  means  for  estimating  the 
value  contributed  respectively  by  the  designer,  by  tlie 
miner  who  took  the  iron  ore  from  the  face  of  the  mine, 
by  the  railway  men  who  transported  it,  by  the  workers 
at  the  furnace  in  which  it  was  reduced,  by  those  at  the 
steel  rolling  mills  where  the  steel  was  rolled  into  plates. 
by  the  rivetters  who  rivetted  it  into  the  form  of  a  ship, 
by  the  carpenters  and  other  artificers  who  completed 
the  vessel. 

Clearly  an  equal  division  of  the  proceeds  among  tlw 
various  persons,  some  of  whom  contributed  much  and 
some  little  to  the  total  result,  would  not  necessardy  be 
just;  even  if  every  one  of  them  could  wait  for  a  year  or 


KATK    OF    WAGKS  245 

more  for  the  payment  of  their  quota,  and  even  if  there 
Here  no  other  claimants  for  a  share  of  the  proceeds  of 
the  joint  lahor.  Moreover,  tlie  vahie  of  the  vessel  does 
not  (le,)end  exclusively  ujion  tlie  circumstance  that  a 
larfcre  number  of  persons  labored  in  the  production  of  it 
but  depends  very  largely  upon  the  circumstance  that 
a  large  number  of  persons  desire  to  use  the  vessel  when 
It  is  produced. 

Thus,  even  if  the  laborers  had  free  access  to  the  means 
of  production  and  if  the  raw  materials  out  of  which  the 
ves.sel  was  constructed,  and  the  t.wls  «liich  were  used 
in  construction  were  gratuitouslv  placed  at  their  dis- 
posal, some  means  would  still  have  to  be  devised  of  main- 
taming  the  laborers  while  the  ,essel  was  Inking  con- 
structed. Clearly  tlie  vessel  would  not  ac,,uire  its  full 
va  ue  until  it  was  completed,  nor  could  the  value  be 
fully  realized  until  years  afterwards. 

•m.  Supporting  labor  during  period  of  production. 
-it  a  community  whose  economic  system  was  character- 
ized by  thoroughgoing  communism,  attempted  an  opera- 
tion of  the  kind  suggested,  it  would  be  necessary-  for  it 
to  have  previously  accumulated  a  stock  of  f.K)d  and 
clothing  sufficient  to  subsist  all  those  of  its  members 
«lio  were  engaged  in  the  various  and  prolonged  labors 
necessary  for  the  construction  of  the  vessel  during  the 
wliole  of  the  period  which  elapsed  from  the  beginning  to 
the  end  of  that  construction.    In  other  words,  they  would 
liave  had  to  accumulate  capital,  because  the  means  by 
«lm'li  the  various  workers  are  subsisted  durin-r  the  op- 
eration constitute  the  capital  involved  in  it.    The  vessel 
«lien  It  was  completed,  might  be  utilized  by  the  com- 
munist community  or  it  might  be  sold.    If  it  were  util- 
W(!  by  the  community  the  net  saving  of  the  hire  of 
lother  means   of   transportation,   whatever   that   might 


1/     i' 


246 


ECONOMICS 


amount  to,  would  gradually  enable  the  community  tn 
replace  the  capital  expended  upon  the  vessel  and  would 
thus  enable  it  to  undertake  another  similar  enterpiiv^ 
and  so  on.  The  essential  iwint  is  that,  before  the  enter- 
prise was  entered  upon,  it  would  be  necessary  to  possess 
the  means  of  subsistence  for  the  workers  upon  it,  or  it 
would  be  necessary,  while  it  was  in  progress,  for  tlie 
other  memliers  of  the  community  to  support  those  wlm 
were  engaged  in  the  enterprise. 

The  city  of  St.  Petersburg  was  built  in  precisely  this 
manner,  not  by  a  communist  ^ciety  but  by  enoriiidus 
numbers  of  state  peasants  who  were  reijuired  by  Pettr 
the  Great  to  cut  the  timber  in  the  forests,  to  bring  it 
to  the  site  chosen  for  the  city,  and  to  drive  the  |)ilt 
upon  which  the  city  was  subse(iuently  built.  While  tliiy 
were  doing  so,  the  peasants  could  not  cultivate  tluir 
lands  and  obtain  subsistence,  therefore  thousands 
other  State  Peasants  were  required  to  bring  wheat  and 
rye  for  their  support. 

231.  Foltintar//  (inHodation. — Co-operation  of  tlii: 
kind  may  be  organized  by  a  communist  society  such  as 
we  have  supposed,  or  by  means  of  forced  labor  as  in  the 
illustration,  or  by  means  of  the  voluntary  association  iit 
immerous  persons.  A  communist  society  is  held  to- 
gether either  by  a  high  social  ideal,  or  by  some  kind  ( 
force,  moral  or  material ;  forced  labor  of  enormous  num- 
bers of  peasants  is  only  possible  under  conditions  of  })er- 
sonal  bondage ;  voluntary  association  is  the  usual  means 
by  which  large  enterprises  of  the  kind  suggested  are 
organized. 

But  there  must  be  some  motive  for  the  voluntary  as- 
sociation.    This  motive  is  usually  the  pursuit  of  indi- 
vidual gain.     Desire  to  make  a  living,  together  w 
avarice,  appear  to  l)e  sufficient  to  bring  together  at  tiie 


RATK   OF    WAGES 


247 


call  of  some  ijerson  or  grouj,  of  persons,  those  who  will 
be  willing  to  render  the  various  services  necessary.  In- 
stead of  waiting  for  problematical  incomes  from  the  fin- 
ished vessel  when  it  enters  into  the  service  for  which  it 
is  destined,  those  who  co-operate  are  willing  to  compound 
day  by  day  or  week  by  week  for  their  share  of  the  even- 
tual product. 

•232.  Advantages  of  modern  system.— This  system  of 
ampounding  gives  them  a  certain  freedom.  They  can 
leave  off  working  when  they  please,  unless  they  are 
bound  by  agreement.  They  are  not  in  the  position  of 
communists  who  must  either  remain  members  of  their 
groups  or  forfeit  their  share  of  the  accimiulations  made 
by  the  group  and  by  them  as  members  of  it;  nor  are 
they  m  the  position  of  serfs  who  must  work  at  the  call 
of  their  owner.  They  are  free  hired  laborers,  or  they 
«re  owners  of  raw  materials,  or  they  are  owners  of  liquid 
capital  capable  of  being  transmitted  into  any  one  of 
many  required  forms. 

Modern  industrial  organization  has  many  disadvan- 
tages; but  one  of  its  advantages  is  its  voluntary  char- 
acter. Those  who  engage  in  it  are,  compared  with  those 
who  engage  in  other  known  methods  of  organization,  in 
the  enjoyment  of  greater  freedom.  The  essential  fea- 
ture of  this  organization  is  the  voluntary  supply  of  capi- 
tal, on  the  one  hand,  and  of  labor  on  the  other.  Capital 
has  no  inherent  power  to  compel  the  laborer  lo  work; 
nor  has  the  laborer  any  inherent  power  by  means  of  a 
general  strike  or  otherwise  to  compel  the  capitalist  to 
supply  industrial  capital. 


Ml 

m 


^<^sem.  asit: 


CHAPTER  V 

PRACTICAL  LABOR  PROBLEMS 

233.  iMbor  combinatiom  Combinations  of  laborers 
for  the  purpose  of  collect  >  ciy  making  demands  upciii 
their  employers  for  improved  conditions  of  labor,  for 
higher  wages  or  for  resisting  reductions  of  wages,  arc 
not  new  phenomena.  Strikes  and  mass  fights  of  labor- 
ers are  known  to  have  occurred  in  almost  all  ages. 

The  trade  union,  is  however,  an  organization  whicii 
dates  not  earlier  than  about  the  end  of  the  eighteenth 
century  Even  then  it  was  upon  a  very  small  scale. 
Small  local  unions  in  individual  trades  were  fornieil 
more  or  less  surreptitiously.  In  the  beginning  of  the 
nineteenth  century  such  unions  were  found  to  be  formed 
for  "restraint  of  trade"  and  were,  therefore,  forbidden. 
From  about  1880  several  large  general  unions  of  all 
trades  were  formed  successively,  and  some  of  them  as- 
sumed considerable  proportions. 

It  was  not,  however,  imtil  the  third  quarter  of  the 
nineteenth  century  when  trade  unions  were  ermirted 
to  register  themselves  in  Great  Britain  as  Friendly  So- 
cieties that  they  were  in  any  sense  recognized  as  having 
a  legal  existence.  From  that  time  onward,  the  trade 
union  has  played  a  large  role  in  labor  politics,  especially 
in  Great  Britain,  where  the  proportion  of  working  iiiei! 
who  belong  to  trade  unions  is  mvich  larger  than  it  is  in 

248 


PRACTfCAL   LABOR    J'ROBLEMS  349 

any  other  country.  Indeed,  except  in  the  British  Em- 
pire and  in  the  United  States,  trade  unionism  in  the 
English  sense  can  hardly  be  said  to  exist. 

There  are,  however,  on  the  continent  somewhat  ana- 
logous bodies.  These  organizations  are  rarely  purely 
trade  organizations.  They  have  generally  as  an  impor- 
tant reason  for  existence,  the  promotion  of"  some  political 
propaganda  although  they  have  also  certain  economic 
characteristics.  Because  of  their  political  aspects  such 
organizations  have  generally,  although  not  invariably, 
been  discouraged  and  their  activities  have  even  been 
arrested  by  continental  governnu ms. 

Soon  after  acquiring  in  some  measure  a  legal  status, 
trade  unions  in  Great  Britain  began  to  promote  the 
candidacy  of  some  of  their  own  number  as  members  of 
Parliament,  and  they  began  to  develop  a  Parliamentary 
policy.  This  policy  related  chiefly  to  the  .regulation  of 
certain  dangerous  industries,  such  as  mining,  to  the  fac- 
tory acts  and  the  like.  The  trade  union  movement  in 
the  middle  of  the  seventies  of  the  nineteenth  century  was 
confined  to  a  few  of  the  leading  trades  and  the  union 
leaders  m  these  trades  determined  the  policy  of  the  move- 
ment. 

-34.  Ch  inge  in  trade  ttnion  control— The  first  serious 
invasion  of  their  position  occurred  through  the  admis- 
sion in  1876  of  about  a  hundred  thousand  agricultural 
laborers  into  the  Trade  Union  Congress.  This  invasion 
was  followed  in  1889  by  the  similar  admission  of  the 
dock  latorers.  The  second  of  these  invasions  marks  a 
ne»-  epoch  in  Trade  Unionism. 

The  admission  of  a  union  composed  of  casual  laborers 
indicated  a  great  change.  The  new  recruits  were  repre- 
^nted  by  a  group  of  remarkable  men.  Some  of  them 
were  natural  orators  and  all  of  them  were  enthusiastic 


J 


m 


i^j 

^|nR 

w 

'^ii 

ri 

ie 

IS  , 

,1 

Hf 

'  -A 

18- ' 

iso 


ECONOMICS 


socialists  of  one  or  other  of  the  numerous  types  of  (!u 
socialists  of  that  period.  Tiie  influence  of  the  oldir  Imi. 
of  trade  union  officials  then  begun  to  decline.  Hut  I  In 
full  meaning  of  that  decline  did  not  make  its  apptaruiut 
until  1911,  when  what  amounted  to  a  general  strilte  was 
declared  in  spite  of  discountenance  of  the  movement  by 
the  trade  union  officials.  This  event  was  indeed  ahnost 
as  much  a  strike  against  them  as  it  was  against  em- 
ployers. 

Although  it  was  evident  that  the  syndicalist  move- 
ment (see  page  234)  which  had  been  developed  in 
France  and  Italy  had  had  some  effect  upon  British 
Trade  Unionism,  the  strike  passed  without  any  material 
resort  to  violence.  It  meant,  however,  the  practical  pass- 
ing of  the  control  of  the  labor  movement  in  Great  Brit- 
ain out  of  the  hands  of  the  older  group  of  trade  union 
members  of  Parliament. 

The  so-called  Labor  Party  cannot  be  held  as  yet  to 
form  a  homogeneous  group;  and  its  influence  upon  tlie 
movement  is  by  no  means  a  dominant  factor.  The  labor 
movement  as  a  whole  is  undoubtedly  still  largely  in- 
fluenced in  Great  Britain  and  to  a  problematical  extent 
in  the  United  States  by  the  powerful  unions  of  the  larger 
trades — ^the  engineers,  the  unions  of  miners,  railway  ser- 
vants and  the  like,  and  these  in  general  adhere  to  tlie 
older  methods.  They  have  large  funds  and  are  not 
usually  in  favor  of  strikes,  excepting  as  a  last  resort. 
Recent  legal  decisions  which  have  rendered  the  funds  of 
the  large  unions  liable  to  attaclunent,  have  had  the  effect 
of  diminishing  the  prestag^  of  the  more  wealthy  and 
conservative  unions  and  of  thus  contributing  to  the  more 
unstable  and  aggressive  syndicalism. 

It  would  appear,  however,  that  the  strike,  especially 
the  General  Strike,  or  simultaneous  strikes  of  many 


PRACTICAL   L.VBOR    PROBLEMS  Ml 

trades,  does  not  inspire  the  confidence  in  its  success  as 
«  weapon,  which  at  one  time  it  inspired.  Trade  Union- 
ism in  (Ireat  Britain  may  thus  Ik;  said  to  have  passed 
through  one  of  the  phases  of  its  history  without  as  yet 
having  given  any  decisive  indication  of  the  character  of 
tilt  next  phase.  This  delay  may  probably  be  attributed 
to  the  fact  that  durinp  a  period  of  extraordinary  activity 
in  manufacturing  industrj-,  trade  unionism  and  labor 
agitation  are  in  general  quiescent.  It  may  be  expected 
that  the  next  industrial  crisis  will  exhibit  some  fresh 
features. 

233.  Strikes.~The  trade  union  may  be  regarded  as 
representing  an  important  and  useful  phase  of  the  la- 
bor movement.  The  habit  of  organization  and  the  nec- 
essity of  subjecting  individual  interests  to  the  interest 
of  the  group  have  had  important  moral  effects;  the 
economic  effects  a.  e  less  certain. 

The  trade  union  to  a  limited  extent,  by  limiting  the 
number  of  apprentices  and  by  means  of  strikes,  may 
enable  its  members  to  place  a  reserve  price  upon  their 
labor.  If  the  employer  does  not  agree  to  terms  pro- 
posed by  or  in  the  interests  of  his  workmen,  and  if  the 
branch  of  handicraft  to  which  they  belong  is  organized 
m  a  trade  union,  a  strike  may  occur.  During  the  strike 
the  unemployed  workmen  receive  strike  pay  which  is 
usuaUy  one-half  or  less  than  one-half  of  their  normal 
wages. 

If  the  finances  of  the  imion  admit  of  a  long  struggle 
and  if  the  spirit  of  the  strikers  is  such  that  a  long  strug- 
gle can  be  maintained,  the  men  will  probably  gain  their 
point  and  will  receive  an  increase  in  wages.  They  will 
only  do  so  in  general,  however,  if  the  conditions  of  the 
industry  warrant  an  increase,  and  they  will  not  do  so  if 
there  has  been  overproduction  of  their  product  and  if 


I 


MICDOCOPV   DESOIUTION   TEST  CHAIT 

lANSI  and  ISO  TEST  CHART  No   J| 


A     APPLIED  IIVMGE     In. 


253 


ECONOMICS 


manufacturers  have  large  stocks  of  which  they  are  de- 
sirous of  disposing. 

In  any  case,  the  strikers  will  have  depleted  or  ex- 
hausted the  funds  of  their  union  and,  perhaps,  comprom- 
ised the  solvency  of  their  sick  and  funeral  benefit  funds 
and  the  like. 

236.  Strike  failures. — While  strikes  are  sometimes  in- 
evitable, they  are  always  very  costly,  both  directly  ami 
indirectly  to  the  workers  themselves.  Urder  favorable 
conditions,  when  demand  for  labor  is  active,  the  pres- 
sure of  a  united  demand,  supported  by  the  influence  (jf  a 
large  union,  may  undoubtedly  hasten  or  even  occas- 
ionally force  an  advance;  but  in  a  falling  market,  wlien 
demand  is  slack  and  the  warehouses  are  overstocked,  a 
strike  for  higher  wages  or  for  the  purpose  of  resistiii<;  a 
reduction  occasioned  by  the  exigencies  of  trade,  is  gen- 
erally a  failure.  So  also,  strikes  which  occur  at  too  fre- 
quent intervals  are  in  general  failures  because  the  finan- 
cial strain  of  a  strike  is  too  great  for  frequent  recurrence 
and  because  the  nervous  strain  of  an  important  strike 
is  sometimes  great  enough  to  kill  the  leaders  on  either 
or  both  sides. 

237.  Collective   bargaining. — Individual   bargaining 
between  workmen  and  employers  has  been  practically 
replaced  by  collective  bargaining  in  most  of  those  trades 
whose  members  are  organized  in  stable  trade  unions. 
Prior  to  the  drawing  up  of  a  collective  bargain,  how- 
ever, it  is  almost,  although  not  quite,  indispensable  for  I 
■■he  employer  to  recognize  the  union.     This  has  often  | 
.jtien  done  with  great  reluctance  because  recognition  of  i 
the  union  means  discussion  of  the  rates  of  wages  payable 
to  employees  with  third  parties — the  officials  of  tiie  | 
union  to  which  the  men  belong. 

Many  strikes  have  taken  place  having  for  their  ol)- 1 


PRACTRAr.    J,ABOIl    PROBLEMS  253 

ject  the  recognition  of  the  union  with  the  nlterior  ohicct 

he  advantageous  to  the  workers,  however,  it  is  necelrv 
o  have  m  the  background  an  amount  rf  t  ar  ,Z 
funds  sufficient  to  enable  the  worL-^rc  t„    i 

strength  of  the  trade  unions,  althougli  it  does  not  nltn 
238.  Economic  effects  of  trade  unionism  — TI,» 

members  of  the  union,  to  refrain  fr^L  off"  1^.7 

i  stoek  1    '^°"%^"'=^«''f"IIy.  production  is  restricted 
r         aic  auvanced.    Advances  in  wases  usnnllv  f^i 

dispute.    A  strike  of  bakers  would  produce  in- 


&*' 


-  4 


254 


ECONOMICS 


finitely  more  widespread  and  serious  eflfects  than  a  strikt 

of  tailors. 

The  policy  of  restricted  output  is  sometimes  adoptul. 
the  men  refusing  to  work  for  more  than  three  days  a 
week,  for  example,  in  order  that  the  restricted  output 
may  permit  accumulated  stocks  to  be  sold  and  that  tlnis 
the  way  may  be  prepared  for  a  demand  for  increased 

wages. 

When  workmen  are  scarce  and  the  supply  prices  ot 
labor  are  high,  the  supply  prices  of  the  commodities 
produced  by  them  will  be  high  also;  but  each  increase  in 
the  supoly  price  checks  demand.  Either  the  supply 
price  will  have  to  be  reduced  or  the  production,  and, 
therefore,  the  employment  will  have  to  be  diminished. 
The  results  of  increased  wages  under  such  conditions 
would  be  either  negative  so  far  as  prices  are  concerned, 
in  which  case  the  increase  in  wages  would  have  to  be 
paid  out  of  profits,  or  positive  in  which  case  the  increase 
would  be  paid  by  the  consumer,  while  fewer  workmen 
would  be  employed  owing  to  the  reduced  demand. 

239.  Trade  Unionism  in  the  United  States.— In  the 
United  States  trade  unionism  has  passed  through  phases 
of  character  similar  to  those  through  which  unionism 
has  passed  in  Great  Britain.  Local  unions  and  loca' 
groups  of  unions  were  first  formed  and  then  wider  na 
tional  unions  of  particular  trades  or  groups  of  trades 
then  the  American  Federation  of  Labor  corresponding 
to  the  Trades  Congress  in  Great  Britain.  The  same 
conflict  of  jurisdiction  between  unions  also  followed  and 
there  has  recently  emerged  the  same  doubt  and  suspicion 
of  the  officialism  of  the  unions,  the  outcome  of  whicli 
has  been  a  syndicalist  wing  of  the  labor  movement  repre- 
sented by  the  Industrial  Workers  of  the  World.  Tli» 
latter  movement  has  not  yet  attained  any  formidabl 


PRACTICAL  LABOR  PROBLEMS      255 

numerical  proportions,  but  it  has  developed  great  activity 
and  great  organizing  ability,  especially  in  the  Pacific 
States  and  to  some  extent  in  the  East  and  South  The 
most  aggressive  syndicalism  has  made  its  appearance 
in  the  minmg  and  lumbering  industries.  Its  aim  ap- 
pears to  be  to  form  one  universal  union.  Instead  of 
adopmg  a  hostile  attitude  to  Asiatic  labor  it  has  sought 
to  enhst  both  Chmese  and  Japanese  in  its  ranks.  The 
purpose  of  this  union  appears  to  be  a  determined  strug- 
gle agamst  capitalism  in  the  United  States 

The  development  of  trade  unionism  in  the  United 
States  has  undoubtedly  been  influenced  by  the  fact  that 
a  very  large  proportion  of  tiie  wage-earners  in  the  great 
mdustries-in  mining  and  in  the  steel  and  textile  in- 
dustries-consists of  comparatively  recent  immigrants 
rom  Southern  and  Eastern  Europe.    These  workmen, 
largely  unskilled,  are  not  only  unaccustomed  to  trade 
union  organization  but  are  imperfectly  acquainted  or 
even  ignorant  of  the  English  language.     An-      iven 
group  of  them,  also,  is  diversified  in  racial  origin     The 
wages  which  they  are  able  to  secure  without  the  aid  of 
any  trade  union  are  much  higher,  both  nominally  and 
ally,  than  the  wages  to  which  they  have  been  Lus- 
tomed.    Ma.       f  them  contrive  to  save  what  for  them 
are  considera.     sums  of  money. 

Trade  union  organization  is  thus  very  difficult     In 
some  ca^es  unions  have  trained  and  employed  as  speak- 
ers and   agitators   Italians,    Greeks,    Bulgarian     and 
0  hers  with  the  object  of  utilizing  them  as^trade  Uon 
organizers  among  their  respective  compatriots 
no    Trade  unionism  in  Canada.-Tmch  unionism  in 
anada  owes  its  origin  partly  to  the  creation  of  branches 
f  unions  having  their  headquarters  in  the  United  States 
»nd  Great  Britain  and  partly  to  the  formation  of  loci 


256 


ECONOMICS 


unions  by  immigrants  from  Great  Britain.  The  cnni- 
paratively  rapid  development  of  industry,  and  the  scanti- 
ness of  population,  together  with  the  existence  of  fiir 
land,  have  rendered  the  conditions  of  labor  so  favorat)k 
and  the  rate  of  wages  so  high  that  the  advantages  pf 
unionism  have  been  less  obvious  than  otherwise  tlicy 
might  have  been.  The  maintenance  of  some  of  tht 
unions  has  thus  been  difficult  and  there  have  been  many 
fluctuations  both  in  the  local  bodies  and  in  the  national 
organizations.  International  unions  play  a  large  role 
because  there  is  much  coming  and  going  of  workmen 
across  the  line. 

241.  International  trade  unions.— So  large  a  propor- 
tion of  the  total  wage-earning  population  in  the  United 
States  and  Canada  is  employed  in  agriculture,  and  tlit 
organization  of  agricultural  unions  on  any  large  scale 
never  having  been  effected  in  either  country,  the  num- 
ber of  trade  unionists  in  America  is,  relatively  to  tlit 
total  number  of  employed  persons,  much  smaller  than 
is  the  case  on  the  continent  of  Europe  and  in  Great 

Britain. 

The  fact,  however,  that  the  important  unions  are  inter- 
national and  that  there  is  thus  a  very  close  association 
between  the  wage  earners  of  the  two  countries,  con- 
tributes an  element  of  power  to  American  unionism 
which  does  not  exist  in  unionism  in  Europe.  This  ele- 
ment of  power  is  also  undoubtedly  an  element  of  danger 
In  order  to  promote  the  interests  of  labor  in  the  United 
States,  it  may  be  expedient  to  incite  labor  disputes  in 

Canada.  .  , 

Difficulties  arise  in  cases  where  trade  union  otticiab 
from  the  United  States  present  themselves  to  employers 
in  Canada  to  negotiate  the  wages  of  the  members  of  tte 
unions.     Occasionally  the  question  of  the  recognitw 


PIUC'I       \l.    I.AHOU    I'UOIU.K.MS 


■iol 


of  the  union  has  hccn  foiiipmniised  In-  its  iiiternationul 
character.  National  unions  liave  sometimes  been  fos- 
ttred  by  employers  as  an  offset  to  international  unions. 

212.  "Closed"  and  "open  shop." — In  certain  indus- 
tries the  trade  union  is  s.  /ong  enough  to  insist  upon  the 
fixation  of  a  lal)el  to  a  commodity  to  indicate  that  it  is 
made  by  union  labor.  Some  of  the  unions  are  also  stronj? 
enough  to  insist  upon  the  exclusive  emplo;-ment  of  mem- 
bers of  trade  unions.  A  factory  where  oni>  trsde  union 
members  are  employed  is  known  as  a  "closed  slioi)." 
One  in  which  any  one  may  be  einploye<l  wiiether  he  is 
a  member  of  a  trade  union  or  not,  is  known  as  an  "open 
shop."  There  are  a  few  industries  both  in  Canada  and 
ill  the  United  Statf.'s  where  trade  union  members  are 
excluded  from  employment. 

243.  Woman's  labor. — The  determination  of  the 
wages  of  women  has  long  been  looked  upon  as  deiiending 
upon  factors  different  from  those  which  determine  the 
wages  of  men.  The  chief  reason  for  this  is  that,  as  a  rule, 
women  are  not  entirely  self-sustaining.  In  the  textile 
manufacturing  trades,  in  clothing  manufacture,  in  the 
canneries,  and  in  confectionary  works,  for  example, 
where  women  are  extensively  employed,  the  workers  not 
exclusively,  but  largely,  live  in  the  houses  of  their  par- 
ents who  also  work  in  the  same  or  in  other  factories. 
Tiie  wages  of  the  women  go  to  increase  an  already  exist- 
ing family  income.  Thus,  so  large  a  number  of  women 
can  afford  to  take  'a  wage  less  than  they  would  require 
to  have,  to  enable  them  to  live  independently,  that  their 
attitude  in  making  a.  wage  bargain,  influences  the  bar- 
!<ains  made  by  all  other  women. 

The  arguments  for  the  public  regulation  of  the  wages 
of  women  are  thus  stronger  than  those  for  the  regulation 
of  those  of  men.     It  is  obvious  that  a  rule  which  would 

c— I— 17 


m 


258 


ECONOMICS 


require  the  equal  jittyment  of  men  and  women  in  like 
employment  might  result  in  the  employment  of  nmi 
rather  than  women  in  those  occupations  which  are  opdi 
to  both  sexes.  In  the  teaching  profession,  for  example, 
if  the  salaries  of  men  anil  women  were  the  same,  men 
would  in  most  cases  be  employed  by  preference.  'I'lif 
reasons  for  the  preference  are  that  once  liaving  entertd  it 
men,  as  a  rule,  remain  in  the  profession,  while  wotnoi 
do  not,  and  that  in  general  the  discipline  of  men  is 
regarded  as  being  superior  to  that  of  women.  In  tlic 
lower  grade  schools,  however,  where  the  siipervisinn  of 
children  is  concerned,  women  teachers  are  frequently  tin 
better  disciplinarians.  In  some  occupations  of  the  hifflur 
kind,  where  competition  is  restricted,  the  salaries  of  men 
and  women  of  similar  qualifications  are  alike. 

244.  Voluntary  minimum  tcages. — In  many  unskilled 
trades,  especially  those  in  which  women  and  girls  arc 
largely  employed,  employers  have  found  it  advantageous 
to  establish  a  fixed  minimum  wage.  Under  this  system 
candidates  for  employment  are  taken  on  probation  for 
a  short  period  at  the  minimum  rate.     If  their  work 

reaches  a  certain  standard,  the  standard  being  ba 1 

upon  a  piece  work  rate,  they  retain  their  positions ;  if 
it  does  not,  they  are  discharged. 

Since  a  certain  proportion  of  those  who  are  appointed 
on  probation  do  not  attain  the  required  standard,  the 
system  must  have  one  or  other  of  two  consequences, 
either  the  deficiency  of  those  who  fall  short  of  the  stand- 
ard must  be  met  out  of  deduction  from  the  wages  of 
the  gainful  workers;  or  it  must  be  regarded  h\  the  em- 
ployer as  a  premium  of  insurance  against  public  criti- 
cism of  his  business  on  the  ground  that  he  pays  wages 
which  are  inadequate  for  subsistence. 

In  a  large,  well-organized  and  generally  profitablt 


PHACTICAI.    r.AUOIt    I'UOIII.K.MS  ^^ 

business,  tl.is  systt-n.  nmy  ho  curricl  „„  c.onti„„„„slv  with 
-vantage,  l,„t  the  e.nph.ye.-  on  the  n.arKin  will  fi„,,  it 
Jrtic,  t  to  pay  the  prenm.n.  i„v„lve,l  i„  the  system. 
M.ould  he  adopt  the  syste...  of  a  fixed  „,i„i„„,„,  the 
average  wape  of  his  worker  will  probably  be  lower  than 
it  might  otherwise  he. 

Even  in  a  trade  .such  as  Karment-makinK.  the  skill  of 
workers  vanes  enormously.  In  one  ease  known  to  the 
«r,ter  two  g.rls.  one  a  fresh  recruit  and  the  other  an 
cxi.erieneed  hand,  were  working  side  by  side  in  a  gar- 
..RJ.  factory.  Tlie  n.ost  assiduous  toil  of  the  recruit 
yicMed  at  the  end  of  her  first  week  $1..,)8,  while  the 
IJor  of  the  experienced  girl  who  probably  exerted  less 
ettort  yielded  at  the  same  j.ieee-.vork  rate  .1««.  „r  „„,re 
than  three  tmies  as  much.  In  the  second  week  the  re- 
mnt  made  a  little  more,  but  she  despaired  of  attaining 
the-  proficiency  of  her  fellow  worker,  nor  di.l  she  succeed 
".ltd  several  weeks  had  elapsed  in  making  even  a  living 
wage.  *" 

Under  some  conditions  the  minimum  wage  may  be 
regarded  as  an  advantage.     It  throws  the  cost  nf  the 
education  of  the  worker  directly  upon  the  employer, 
although  the  incKlence  of  the  cost  will  he  likely  event- 
ually to  fall  upon  the  workers  as  a  whole.     It  would 
appear  that  there  might  be  adopted  a  system  of  teeh- 
'"cal  education  by  means  of  which  the  teclini,,ue  of 
certain  trades  in  which  large  numbers  of  working  people 
are  employed,  might  be  imparted  at  a  minimum  of  cost  to 
tliose  who  intend  to  enter  such  trades;  but  even  a  system 
0  tins  kind  would  not  be  likely  to  meet  the  case  of  those 
«h".lrop  into  inferior  employment,  like  garment  mak- 
g.  for  instance,  and  who  have  neither  time  nor  means 
to  enable  tliem  to  take  advantage  of  educational  facili- 
ties.    Ihey  must  work  for  wages  without  delay.    For 


II' 


860 


I'.(()N()MUS 


1  ' 


such  workers  tlie  niiiiinuim  waffe  is  ii  real  a<lvaiil;i«o 
even  if  subsequently  the  deficiency  "f  their  r<!cruit  st;i}.'i 
is  met  by  dechietion  from  their  subsequent  want's. 

245.  Statuton/  iinnimuin  tcfl^tx— The  case  of  volun- 
tary min'mum  wages  has  been  discussed  above.  'I'in 
case  of  statutory  minimum  wages  depends  upon  soim- 
what  similar  conditions.  The  statutory  minimum  wiifn 
apparently  fixes  a  leserve  price  for  lalwr,  but  it  (^ll^ 
not  enable  the  applicant  for  employment  to  live  sImujI  1 
he  not  be  able  to  secure  employment  at  the  miniimini 
Employers  may  by  means  of  intimate  inspection  oi'  tk 
conduct  o:  their  business  lie  prevented  from  payinjr  kv^ 
than  a  certain  amount;  but  they  cannot  l)e  compelled  t 
employ  workers,  the  product  of  whose  labor  is  not  c(|ii;i 
to  that  amount. 

A  statutory  minimum  wage  would,  therefore,  rtiniin 
to  be  supplemented  by  some  system  by  which  those  wlm 
were  unable  to  obtain  employment  at  the  minimum  wiifii 
would  be  supported  by  the  State.  The  higher  the  mini 
mum  the  larger  would  be  the  number  of  workers  wliicl 
would  l)e  excluded  from  employment  in  the  field  of  ffeii 
eral  industry  and  the  strain  of  the  maintenance  of  tlms; 
who  were  excluded  might  become  very  great.  A  iiiu 
nicipality  may  fix  as  a  minimum  for  all  persons  em 
ployed  in  any  capacity  in  its  service  a  wage  of  $2  ]>« 
day,  on  the  ground  that  this  amount  represents  the  mini- 
mum of  subsistence.  If,  during  a  period  of  industrial 
depression,  the  city  is  inundated  with  applications  fur 
employment  at  this  wage,  it  may  be  advisable  to  ext 
its  pay  roll  in  order  to  provide  employment  for  tlitse 
applicants.  The  new  workers  may  be  set  to  some  civic 
improvement  or  to  some  other  kind  of  employment  f"r 
which  labor  of  an  inferior  or  non-specialized  sort  maj 


ruAcricAi.  i.Aiinn  i'iiobi.kms 


nn 


Init  til.    ■  is  nil  ii'.o\  itiil)lc  limit  ti>  such 


tie  scrvii-euMf; 
cniployini'iit. 

If  till'  iniinicipiil  mitlioritii's  diridc  t'>  t\|Kri(l  a  spwilic 
•.mil  ii|i(>M  such  work.  bciiriiiK  sninu  iiropoilioii  t<i  the 
total  expenditure  of  the  year,  it  will  Ih..  possible  to  eiii- 
ploy  at  the  fixed  niiiiiiiiiiiii  only  n  certain  niiiiiher  of 
persons,  and  other  means  of  relief  will  re<iuire  to  I)e 
provided  for  the  other  applicants.  .Meanwhile,  however, 
the  attraction  of  a  fixed  mininium  will  have  drawn  into 
the  city  from  the  rural  districts  and  from  other  cities 
Hliere  there  is  no  fixed  niinimiim.  n  ore  applicants  for 
iinployment;  with  the  conseciuenee  that  local  charity  will 
lie  overtaxed,  while  those  districts  in  which  no 'fixed 
iniiiimuni  exists  wil'  he  relieved  of  pressure  ujion  their 
iharities. 

This  illustration  is  taken  from  the  ciiv  of  To--  *o, 
ivhieh  every  winter  is  subjected  to  an  invasion  of  unem- 
ployed workmen,  some  of  whom  lea\e  other  centers  on 
account  of  the  fixed  Toronto  minimum  and  others  on 
account  of  the  numerous  charities  in  the  city. 

If,  however,  a  municipal  minimum  wage  results  in 
ilrawin^r  to  the  city  which  imposes  it  a  lar^rer  numl)cr 
'if  ap])licaiits  for  employment  than  would  otherwise  have 
K'liie  there,  it  is  clear  that,  other  things  hfrng  equal,  the 
imposition  of  a  municipal  minimum  wage  will  tend  to 
ilcjiress  the  lalwr  market  by  an  over  supply  of  later  and, 
therefore,  to  reduce  wages  in  gem  il  industry.  Even 
if  the  city  were  able  to  employ  a  large  number  of  the 
applicants  it  could  not  do  so  in  indoor  employments  be- 
cause it  has  no  organization  for  industries  of  an  indoor 
character.  The  city  employment  would  he  wholly  out  of 
iloois  and  rather  than  endure  the  discomfort  of  winter 
«"rk  in  the  streets  the  fresh  aj^plicant  for  employment 
«oiild  accept  even  lower  wages  for  indoor  employment, 


m 


itii 


l'.(()\().\IKS 


2-10.  Stalulari/  mujcimum  iiY/^'C*. — The  flxaticin  ni  ;i 
liiaxiniiiiii  wage  uii.s  ti  very  usual  iiiuiiieipal  aet  duiin^ 
llie  earlier  ajfes  of  free  hired  hilM)r.  When  sueh  lulxiit  i> 
were  few  and  when  llieiUriMitid  for  them  in  the  industrial 
towns  was  inereasiiig,  their  demands  for  liigher  ^va),'l^ 
heeatnu  insistent  and  these  demands  were  sometimes  nc 
conipanied  hy  niueli  turladenoe.  Tills  condition  was 
very  usual  after  any  serious  epidemic  in  which  the  nniij- 
l)ers  of  lalK)rers  in  a  city  were  suddenly  reduced  wliilt 
the  exteriuil  demand  remaineil  unaltered.  The  jjlagiiis 
in  the  fourteenth  eeiitiuy.  whidi  affected  seriously  tin 
great  conniiercial  and  industrial  cities  of  northern  Italv. 
for  example,  reduced  the  lunnhers  of  luhorers  so  tliiit 
wages  advanced  to  a  high  point. 

The  I  lunicipal  authorities  in  several  of  the  city  ri- 
puhlics  endeavored  to  |)revent  the  advance  of  wages  In- 
imposing  a  statutory  maximimi.  On  the  other  haml 
A'enice,  in  general  more  shrewdly  governed  than  any 
other  city  of  her  time,  widely  announced  that  no  maxi- 
mum was  imposed  there,  that  on  the  contrary  the  highest 
wages  would  he  paid.  The  result  was  an  immediute 
migration  of  artisans  and  lahorers  to  Venice,  and  owinj,' 
to  the  competition  of  these  for  employment  wages  fell 
to  a  point  below  the  maximum  imposed  by  th';  other 
cities. 

The  imposition  of  a  maximum  wage  has  a  deterrent 
effect  upon  inmiigration  of  workers  into  the  region  af- 
fected and,  therefore,  a  statutory  maximum  tends  to  lie- 
come  the  uniform  wage  l)ecause  the  best  wcrkers  will 
emigrate  and  only  the  inferior  workers  will  remain. 

2-47.  Conciliation  and  arbitration. — With  a  view  to 
the  mitigation  of  the  struggle  between  capital  and  la- 
bor, arbitration  in  wage  disputes  was  adopted  at  «n 
early  stage  in  the  development  of  the  mechanical  in- 


I'UACTICAI,    I.AIIOK    I'KOIII.KMS  803 

d.istri..s  on  «  |„r„c  sculc.  \Va„vs,  f.,r  cxu,.,,,lc.  in  the 
lytf,,.,  .fnule  and  i„  the  <,,„!  „n,|  i,„„  ,„„,^.  j„  j.^^^^ 
Bntuin  «trf  fixed  l.y  JMmr.ls  of  «.l)itrati..n  ui.,,,  i.itcl 

•i ">■  ''>'  ""^^  fiiipioyirs  nii.l  tlic  ini|,|„vas.     In  tlie 

trude.s  nK'nti..nt.,|.  arl>itrati..n  Inmr-ls  fixe.)  tlie  raU's  ..f 
wa^cs  peri.Klicaliy  and  in  tl>u  \„rth  of  KnKh'M.l  s..  Car 
as  the  iron  and  coal  in.l,.slri...s  are  fo,urr,u,i.  an.l  i„ 
tlie  Manchester  .listriet,  ,so  far  a.s  the  cotton  indnstry  is 
cmccTned,  they  ha^•e  k'en  suecessfully  co.uincted  "for 
more  than  forty  years.  (Jovernn  t  eoneiliation  an.l 
a.l..tr«t.o„  boanls  have  been  appointed  in  Xew  Zealan.l 
and  a  somewhat  sin,ih,r  n.etluKl  has  been  adopted  in 
Canada.  Arbitration  boanls  have  fro„,  time  t..  time 
been  appomted  in  the  United  States,  under  S  ,te  and 
Kderal  Acts,  to  deal  with  specific  <lisputes 

\Vhere  there  is  a  difference  of  opi„i„„  „«  to  the  rate 
"f  wa^es  and  where  the  difference  concerns  a  con.para- 
tivly  smoU  amount,  arbitration  or  conciliation  I„,ards 
Perform  a  useful  function  in  effecting  a  .o„,pr„mise  be'- 
tween  the  parties;  but  where  the  <lifference  is  upon  some 
question  of  fundamental  principle,  such  as  the  recouni- 
lon  of  a  union,  a  compromise  is  impossible  and  arbi- 
ration  ,s  of  little  use.    If  a  body  of  w.,rkmen  refuse 
to  work  unless  their  union  is  recognized,  an.l  if  the  em- 
plo>;ers  refuse  to  recognize  the  union,  no  iKinnl  of  arbi- 
tration can  settle  a  dispute  of  that  kin.l  because  it  cannot 
enforce  Its  decision.    The  employers  can  onlv  yield  to 
mmomic  pressure;  a:id  the  same  is  true  of  tl,;  work- 

mat"b'7'°-'T/''°  '"  ""  contractor  to  the  goyernment 
maj  be  f,,rced  to  recognize  a  union  or  to  increase  the 
«ages  of  his  men  by  means  of  a  threat  that  if  he  does 
not  d  so  he  will  be  awardc.l  no  more  goyernment  eon- 
tracts,  or  by  threats  of  prosecution  by  the  goyernment 


S64 


ECOXOJIICS 


for  alleged  violation  of  the  Trust  Act,  etc.  If  he  yields. 
however,  it  will  most  probably  be  on  the  understandiii;,' 
that  the  increase  of  wage  will  be  taken  into  account  in 
the  next  contract.  An  arrangement  of  this  kind  results 
in  the  taxpayer  paying  the  increase  and  not  the  con- 
tractor. There  have  been  instances  in  the  United  States 
of  strikes  for  increased  wages  by  the  employees  of  a 
government  contractor  and  of  the  claims  of  the  strikers 
be!ng  met  after  an  a-rangement  by  which  the  represen- 
tatives of  strikers  agreed  to  press  for  an  increased  price 
to  be  paid  by  the  government  to  the  contractor.  In 
such  cases,  the  strike  is  not  ri.ally  against  the  contractor 
but  against  the  taxpayer. 

In  the  case  of  an  employer  who  does  not  stand  in  tlie 
relation  of  a  contractor  or  of  a  j)ossible  contractor  t(i 
the  government,  the  latter  has  no  direct  power  to  force 
an  increase  of  wages  or  to  force  employment,  althouijli 
indirectly  it  may  exercise  such  a  power.  In  no  ciise 
has  a  government  or  a  board  of  arbitration  power  to 
enforce  a  decision  against  the  men.  If  the  men  refuse 
to  accept  the  decision  of  the  board,  a  strike  or  the  con- 
tinuance of  a  strike  already  in  existence  is  their  only 
alternative.  Unless  it  is  presumed  that  the  government 
has  absolute  power,  it  cannot  send  the  men  to  jail  merely 
because  they  refuse  to  work.  Under  common  or  statute 
law  they  may  be  indicted  for  any  violent  act  which  they 
may  commit  but  they  canot  be  prosecuted  for  refrain- 
ing from  labor. 

This  formidable  fact  has  rendered  arbitration  of  no 
effect  in  frequent  cases,  in  every  country  in  which  arbi- 
tration legislation  has  been  in  force.  The  policj'  of  arbi- 
tration is  nevertheless  useful  in  those  cases  in  which  tiie 
dispute  is  about  small  differences  in  wages.  In  Canada 
and  in  the  United  States  the  question  of  arbitration 


PRACTICAL    LABOR    PROBLEMS  265 

con^p^cated   by  the   existence   of   international   trade 

•■iiS.  Trade   unionism    and   economic    th con, -The 
earher  phase  of  „,odem  tr.Je  unionism  was  cotciS 
Y'\«'e  development  of  a  theory  of  labor  which  em 
Phas^ed  the  .mportance  t,f  the  relation  of  thetLaTe 
of  population  and  the  rate  of  wages.    It  wa.  heu7h!5 

ence  that  is  that  given  mcreased  production,  population 

impossible  tor  the  wage-earning  class  as  a  whole  to  in 

aT '^irorS  ^'^'^^  P-<luct:on;  butl'  e" 
an   ncrease  of  production  must  necessarily  brinjr  more 

age  earners  into  the  field,  it  was  in  the  long  :^n  hZ 
less  for  the  wage-earning  class  as  a  whnl.  *  ^ 

i.  standard  of  .mfort  eLpTb;  lim;  ing  itrnZbeT 
one  group  of  wage  earners,  by  mean!  of  cZbina: 
t.on  or  otherwise  succeed  in  raising  their  wages  rmnal 
or  real,  other  groups  must  suffer.  ^ 

While  it  has  by  no  means  been  shown  conclusivelv 
that  combination  has  raised  the  wages  of  the  wort   ^ 

fort  due?    It  M'ould  apear  that  it  is  due  chieflv  to  t 

methods  of  production,  the  product  jx^r  labor  uniTS 
ing  greater;  and,  second,  to  the  fir^  tl.nt  h,  ,    • 

Jas  «..  increased  in  proportio^  1 1    tcrearof 
1  action.    An  increased  standard  of  comfort  aTd  lH'- 
h>fe  to  increase  this  standard  still  further  have  in  ,! 
l-ntries.  but  most  notably  in  the  UnitS  tiraZ  in 


266 


F.CONOMICS 


France,  imposed  a  check  upon  the  increase  of  popula- 
tion. To  use  tlie  expression  of  Malthus,  "The  hare  lla^ 
been  persuaded  to  go  to  sleep,  and  the  tortoise  has  over- 
taken it." 

This  is  true  of  the  most  progressive  races  in  the  in- 
dustrial sense;  but  it  is  not  true  of  two  great  and  ex- 
tremely prolific  races,  viz,  the  Slavic  and  the  Chinese. 
The  growth  of  these  two  races  appears  to  conform  to  tlie 
theory  of  population  of  the  latter  part  of  the  eighteenth 
century.  The  struggle  of  the  future  may  be  between 
those  races,  on  the  one  hand,  and  the  Western  races 
which  are  determined  to  maintain  and  to  increase  tlieir 
standard  of  comfort  at  the  expense  of  increase  in  num- 
bers, on  the  other  hand.  It  is  interesting  to  notice  that, 
both  in  China  and  in  Russia,  labor  combinations  of  one 
type  or  another,  have  been  in  existence  from  a  very 
ancient  date,  and  that  they  have  not  been  effective  in 
maintaining  any  high  level  of  comfort,  although  tiiey 
have  on  occasion  been  effective  in  raising  the  rate  of 
wages. 

Trade  unionism,  as  distinguished  from  the  more  recent 
industrial  unionism,  among  Western  nations  has,  in  the 
strict  sense,  accepted  the  system  of  employment  which 
is  usually  called  the  capitalistic  system.    It  has  in  gen- 
eral been  opposed  to  systems  of  profit  sharing  and  co- 1 
operation  as  well  as  to  any  system  of  state  socialism. 
The  fundamental  reason  for  this  hostility  is,  that  under  | 
the  existing  system  wages  are  certain,  although  employ- 
ment is  not  certain,  while  under  the  systems  mentioned,  | 
employment  migh'  be  certain  but  wages  would  be  un- 
certain. 


CHAPTER   VI 

CAPITAL    AND    IXTERE.ST 

2W.  iikton,  of  Merest—The  organization  of  a  pro- 
duct,ve  enterpr,se  involves,  as  we  have  seen,  the  pureC 
of  captal  for  the  purpose  of  procuring  la^d  bSSdiZ 
maeh,.ery  and  other  necessary  n^eans.'and  f;r  Se  pT' 
pose  of  meeting  the  current  expenses  until  the  returns 
rom  the  productive  process  begin  to  come  in.  Jhe  neTd 
or  capital  p,ves  rise  to  the  problem  of  interest  Tht 
problem  of  mterest  is-how  is  the  amount  determi'.cd 
jn.the  market  and  for  what  form  of  value  is  inTe^st 

The  history  of  the  numerous  views  about  the  nature 
of  interest  wh,ch  have  been  advanced  from  time  to  time 
c.n  be  recited  only  briefly.  In  early  ages,  before  w"! 
^  known  as  capitalist  industry  assunted  prominence 

riT  z  r "'  'r*  -'"^  P"^P"^^^  °^  consumpt^;: 

'       xlrdb      P™''"'^*'™-     ^°'"^*™-  forced  loan 
«ere  exacted  by  governments  or  by  nobles  who  were  able 

0  extort  such  "  benevolences."    For  these,  interel   w] 

ot  usually  paid.     Otherwise  those  who  desired    oln, 

^"I'ly  desired  them  for  food,  clothing  and  theSe     T^ 

end  money  for  such  purposes  was  looked  upon  as  a 

hnstian  duty;  and  if  interest  was  charged  upon  i! 

needy.    The  State  and  the  Church  alike,  in  general 
267 


fli 


-t 


mm'. 


41 


368 


ECONOMICS 


discountenanced  and  frequently  forbade  such  transac- 
tions. 

The  beginning  of  modern  commerce,  which  may  he 
said  to  have  occurred  in  the  sixteenth  century,  resulted 
in  a  change  in  views  about  interest.  Many  of  the  com- 
mercial adventures  in  which  the  merchants  of  that  day 
engaged  required  capital  to  a  greater  extent  than  they 
themselves  possessed,  and  they  therefore  borrowed  it. 
Since  the  capital  was  intended  to  be  pnxluctively  eiir- 
ployed,  no  moral  offence  was  observable  in  the  merchant 
offering  and  in  the  owner  of  the  capital  receiving,  when 
the  sum  was  repaid  at  the  stipulated  period,  a  larjjer 
sum  than  that  which  had  originally  been  transferred. 
The  merchant  had  made  a  profit  out  of  the  capital  in- 
volved in  the  loan,  and  it  was  neither  unjust  nor  unrea- 
sonable that  he  should  surrender  some  portion  of  his 
profit  to  the  owner  of  the  capital  which  had  made  the 
earning  of  the  profit  possible. 

250.  Early  theories  of  interest. — This  practice  led  to 
the  ideas  that  interest  was  paid  for  the  use  of  money, 
and  that  interest  was  due  to  the  productiveness  of  cap- 
ital. The  accumulation  of  capital  in  the  latter 
eighteenth  and  early  nineteenth  century  gave  emphasis 
to  another  idea,  viz.,  that  capital  was  the  result  of  sa\ing 
and  that  interest  was  paid  in  return  for  the  service  of 
saving.  The  expression  which  came  to  be  employed  was 
ambiguous,  interest  was  said  to  be  the  "reward"  of 
saving. 

One  of  these  expressions  is  now  used  as  a  defini- 
tion of  interest,  although  each  expressed  a  certain  aspect 
of  the  tmth.  Capital  was  used  and  interest  was  paid; 
and  to  the  individual  lender  the  reward  of  his  abstinence 
came  to  him  in  the  form  of  interest  from  the  people 
to  whom  he  lent  his  money.     Had  he  not  abstained 


CAPITAL    AND   INTEKliST  ggo 

111  wnicn,  nevertheless,  interest  is  nmM      at 
»ct  inrerest  may  be  cliarffeable  for  it      Vcf  tu 

really  a  part  of  the  general  problem  of  value.     How  d' 
Thos.  mtcre,,  „„,  j^  j,j„^j  difference  1, 


270 


ECOXOJIICS 


future  time;  the  amount  of  tliis  difference  is  the  amdiint 
which  it  is  necessary  to  add  in  order  to  j)roduce  equivu- 
lence  between  a  i)resent  and  a  future  sum.  This  tlicory 
of  the  mode  in  whcli  interest  emerges  is  known  as  the 
agio  theory  because  it  regards  interest  as  an  agio  which 
is  added  to  product  equivalence.  The  tiieory  is  stated 
in  various  terms  by  different  writers,  but  in  general  it 
is  accepted  as  the  current  doctrine  of  interest. 

252.  Market  rate  of  interest. — In  the  rate  of  interest, 
as  determined  in  the  market,  there  are  discernible  tlirue 
elements:  first,  the  agio  as  above  described,  or  interest 
proj)erly  so  called;  second,  a  jjremium  of  insurance 
against  loss;  and,  third,  a  commission  or  fee  for  the 
management  of  the  transaction.  All  of  these  elements 
are  variable. 

The  amount  of  the  first  element  or  agio  will  depend 
upon  the  urgency  of  demand  for  immediately  available 
capital,  on  the  one  hand,  and  ujjon  its  supply,  on  tlie 
other.  The  amount  of  the  second  element  will  jpend 
upon  the  lender's  estimate  of  the  risk  incurred  in  mak- 
ing a  particular  loan  or  in  his  estimate  of  the  avenijie 
risk  he  incurs  in  his  business  of  lending  money  or  in 
particular  sections  of  it,  and  the  third  element  will  vary 
with  the  character  of  the  loan  and  the  character  of  the 
lender's  business. 

253.  Four  divisions  of  money  market. — The 
money  market  is  customarily  divided  into  what  niiiy 
be  described  as  watertight  compartments.  In  one  (if  | 
these  compartments  appear  the  sums  destined  by  tlieir 
owners  for  permanent  investment  in  those  securities 
which  yield  an  annuity,  which  i-.  not  involved  in  uncer- 
tainty and  therefore  is  held  to  involve  no  risk.  Tht 
securities  of  the  most  stable  governments  are  in  thi' 
class.     The  principal   investors  rre   the   governments 


^••APITAK    AM,    IXTKHtST  27, 

".^tutions  and  of  l.;!::.,:;;;;;;:;'^  J'"'^''-"'!  private 

vestments  in  J       ,!      '  "V"'"^'  '^''''"''^  *"°'-  '"- 

:^  t'-e  section  in  whicl/ tl  ^at e  th^T^  !'"^'^'  *''^''-'-' 

investment   at   hi.J.er  rat./  '  '^''*'"'=''  f""- 

Apart  from  t,.e  -sei^L:    I  ma  St  t''''  ':T''''- 
cntain  tlie  funds  as  >.I,n,.     >         ■  '  *''*P"'*'  "'''fli 

'-  -j-'h  -n;:;s  ti  Tunl";;;  '7''  "'^^  -^  «•«  - 

i"an  from  day  to  day      T  '"''  """^  ''^'"''«'''«  f"r 

-li.emarket'i-orm™;,.  tl^o  h     '"  '/-   '"  '^^^"'"^'^ 
"'.V  ;Jescribed  as  constu"  u,"'^    '^JXl  ""'■" V^ " 

interest    (both   gross   and  LT  "^ ''"P'*'*^- 

among  these  sections  Tin  "'*  ."""y  ^^^y  widely 
niarket  for  can^  a    "  '  '*'■*'""  conditions  of  the 

-  either  o7t;el^r™*  """'  '^  "^^^'^  *»  "- 
P-ry  deht  at  aTa!  'l^L'^n'T*  °^  '''  *^'"- 
at  the  same  moment  dav  to!)  P'^'"  '^™*'  ^^ile 

a  fraction  of  1  pe"  Z  S  "^  ,"""'  "^"^  ^  '"«'!-  at 
^■tions  a  governLnt  m  y  be^'abtlT'"  °*'"  '^•'"■ 
cent,  while  day  to  dav  IopL  '"'■'''''  «*  ^  Per 

per  cent.  AltLugh  the" wo  dT  ^°'"'"r'''"^  ^»  °^  ^^ 
*h-  separated,  thfy  Je  ^tir''  °^  '^'^  '"-ket  are 
'large  part  of  the  funds  wl?.     """"^^^^ed,  because 

-ent  forms  ma;  t^:     Se  tXT"'  '"  '''■ 
K  day  to  day  loans   am)  ,.  "^  *''^  purposes 

KloyedforL;  poTe  j;^^^^^^^^^    ■'''-'™'-''-  ^^^  "e 
foans.  '     '       ''*™"""8^'noneyondaytoday 

A  peculiaritv  of  the  dav  tr,  ,1 
''O'^e  who  deaf  in  monctl  U     ''  """"'^  ""''^'''  '^  *»!«* 


'^1 


872 


ECONOMICS 


security  they  must  lend,  even  if  they  have  themsiU.s 
to  bor^w;  otherwise  they  might  as  well  give  up  tlair 
business.  This  is  the  reason  of  the  extremely  low  nit,  s 
for  short  periotls  which  are  occasionally  to  be  obtanRa, 
The  market  rate  of  interest  thus  depends  upon  tin 
amount  of  funds  seeking  employment  in  the  particular 
section  of  the  market  in  which  a  given  demand  hiids 
its  appropriate  supply.  It  must  be  realized  that  low 
interest  rates  apply  only  to  large  sums.  BorrowiiiK  m 
detail  resembles  purchases  in  minute  quantities,  the  cost 
of  management  which  enters  as  an  element  into  all  loan 
transactions  constitutes  a  large  part  of  the  gross  n.- 
terest  in  small  loans,  in  large  loans  it  constitutes  a  small 

''*254  Influence  of  monetary  comhinntU.ns.—Mmt)- 
is  so  widely  diflFused  throughout  ^he  world  that  no  at- 
tempts  to  monopolize  it  in  any  effective  manner  co.iW 
possibly  succeed,  -^he  competition  of  capital  is  per- 
haps more  thorough  than  any  other  form  of  comj,e- 

tition.  ,  „ 

Yet  scarcity  of  available  capital  may  occur  irora 

many  causes.     The  owners  of  capital  may  be  afrai.  (.t 

a  financial  crisis,  and  may  be  reluctant  to  allow  their 

money  to  go  out  of  their  possession,  so  that  altho.i(ih 

there  may  be  an  abundance  of  capital  in  existence, 

there  is  a"  scarcity  of  available  capital.     There  may  be 

a  scarcity  of  capital  in  the  centres  of  commerce  because 

money  has  been  drawn  to  the  outskirts  or  has  been 

diffused  so  widely  that  it  cannot  be  obtained  quick 

for  the  purpose  of  satisfying  some  anticipated  denian  , 

Under  these  circumstances  if  a  borrower  goes  mto 

the  market  with  an  urgent  demand  for  money,  he  ma) 

have  to  pay  a  very  high  rate.     Many  large  industm    o 

concerns  require  on  occasion  very  large  sums  upon  tb   fo, 


CAIMTAL    AM)    INTKHKST  373 

credit  of  their  enterprises.  n„d  if  their  nee<I  happens 
at  a  moment  when  the  funds  are  scarce  in  tlie  market 
ttiey  may  have  to  jmy  a  very  high  price  for  it.     Thus' 
the  Pennsylvania   Kailway  required   the   considerable' 
^m  of  $30,000,000  in  1900  and  required  it  at  once 
The  money  Mas  obtained  in  Paris  and  the  rate  inclu.l- 
ing  commissions  was,  it  is  Iwlieved,  about  7  per  cent 
The  credit  of  the  company  was  not  in  question.     The 
marivcl  was  depleted  of  money  and  the  rate  of  interest 
for  all  borrowers  was  abnormally  high 

On  the  other  hand,  .lay  to  day  loans  are  fre.n.entlv 
made  m  ^ew  York  under  ordinary  conditions  of  the 
market  at  2  per  cent  or  less,  while  in  London  fractions 
of  1  per  cent  are  not  unusual  for  very  short  perio.ls. 
The  rate  of  interest  for  all  the  world  is  practically  .le- 
ermined  in  the  money  market  as  a  whole;  but  certain 
ocal  markets  have  a  dominant  influence.     These  are 
London,  Paris,  Amsterdam,  Berlin,  A'ienna  and  \ew 
iork.     The  capital  laboriously  save.l  bv  the  English. 
Dutch  and  Belgian  middle  class,  and  by  the  French 
imants  an.l  small  retired  mercantile   people,  forms 
really  the  bulk  of  the  constantly  increasing  ^und" 
credit  from  which  all  the  rest  of  the  world  draws 

The  relatively  high  rate  of  interest  in  new  countries 
sdue  to  the  .lemand  for  capital  for  the  rapid  exploita- 
tion of  the  natural  resources  and  for  the  construction 
ot  railways,  harbors,  cities,  etc.  Practically  everybody 
in  a  new  country  is  a  borrower. 

2,5.5.  The  function  of  cnpifal.~We  must  now  con- 
s,der  what  is  the  precise  function  which  capital  exer- 
oes  .nt.  mes  so  far  as  pro.luctive  enterprises  arc  concerne.l 
he  ms  From  the  description  which  was  given  of  the  reaninj 
"  A  """1  ?  P'-O'lu'^tion,  it  is  clear  that  in  the  simplest 
.pen  tb|orm  of^that  production  capital  is  involved.     In  order 


iiiV 


274 


Kt'OXOMUS 


to  obtain  time  to  make  a  wenpon  or  tool  it  is  necessary 
to  have  a  reserve  of  foot!  sufficient  to  subsist  the  niakir 
of  the  instrument  while  he  is  making  it.  If  the  pnKiss 
of  Liaking  it  denianils  only  a  short  time,  a  small  quan- 
tity of  fcMxl  is  re(iiiire(l;  but  if  the  prm-ess  deniauds  a 
long  time,  the  quantity  required  is  so  mucli  more. 

Anyone  who  has  really  attemi)ted  to  live  what  !■, 
known  as  the  "  simple  life  "  must  have  been  convirunl 
that  it  takes  a  very  considerable  jjortion  of  a  day,  in  tiw 
absence  of  all  adventitious  assistance,  to  prepare  fixid 
for  |)ersonal  consumption.  If  to  this  portion  we  ailil 
the  amount  of  time  necessary  to  procure  the  food  liy 
hunting,  fishing  or  cultivation,  it  Incomes  clear  tliat 
only  tolerable  expertness  in  all  of  these  oijcrations  lan 
yield  enougli  for  sid)sistence  even  if  the  whole  day  Ix 
occuiiied  in  working. 

If  we  eliminate  altogether  the  jjroducts  of  previous 
work  and  attempt  an  absolutely  fresh  attack  upon  na- 
ture, we  shall  realize  how  difficult  it  is  to  make  any 
jjrogress  at  all.  When  we  are  able,  however,  to  accumu- 
late a  sufficient  reserve  of  food  to  enable  us  to  find  tinit 
to  make  some  implements  which  will  facilitate  (lur 
further  operations  we  can  manage  more  rapidly.  \Vi 
invent  means  to  save  time,  and  gradually  we  are  able  to 
accumulate  more  food  and  by  means  of  that  to  inaiie 
more  instruments  and  so  on. 

2.56.  Ilotc  capital  comes  into  play. — Human  pros 
ress  has  indeed  been  accomplished  in  that  manner.  The 
accumulation  of  food  and  the  instruments  which  wf 
have  made  have  together,  as  it  were,  lifted  us  from  one 
stage  to  another.  The  food  and  the  instruments  woe 
our  capital,  and  our  capital  lifted  us  from  one  stage 
to  another. 

This  lifting  process  is  really  the  function  of  capital. 


fAJ'IlAI.    AM)    INTKUKSJ  .,.7,5 

If  «f  Imvc  f„,„|  „„,|  i„sl,Minn.ts  .  i„„„|,  we  ran  vvr- 

'orm    .„ts  wind,     .ko  .v..„  a  v..,v  l.-i  ti,....     'Vims 

'•'■pital  saves  l„m.   i,  „M-s  ,.s  to  ,1.,  rapi.llv  a„.l  .asilv 

mt  >vlud,  we  nn^rl.t  .,„,,,„.i,,,  ,,„_  ,,,,4  ^^,__,^,  ^,  • 

J'"'..oM.slv„n,l  slowly,  a„.l  it  ...al.lc.s  „s  to  ,lo  ......e 

IliMiKs  «l„cl,  without  it.  we  «,ul.l  „„t  ,lo  at  ull      Tl.,- 
>iei<i  lor  eai)ital  is,  therefore,  ol.vious 

I«>«t  in  order  to  ohtain  eapital.  we  ,„„st  either  ae- 
n.nM.late  the  food  a„.l  the  i„stn..ne,.ts  ourselves  r 
l-<;.|.;c>  then.  fro,u  so,„eo„e  else.  If  we  ea„  hv  u.eans 
;;'  ""1'=^."^  the  foo,|  a„,l  instruu.euts  whieh  ,ve"„n.e,  e 
inm.  someone  ehsc-.  inerease  our  own  resourees.  .!r  if  we 

tl'e  food  and  u.strun.ents  or  their ivalent  in  so,  c' 

-•'K-M/cl  form,  it  „,ay  he  ,ery  advantageous  for  u s  ^o 

-e  an  arran,en..,t  hy  whieh  we  nmv  return  1: 
••;'  ajHl  more  mstnwnents  than  we  ohtaine.l  ori^ina  1  ■ 
In  ccl   we  must  do  so  in  the  norn.al  ease,  for  the  fo    i 
;""'  '"^tn„n..nts  „n>ht  have  l.en  pro.luetivelv  use  1 
.r  o^vners  then.selves.     Our  position  as  fVunlless  a  ^ 
'St  »n,entless  ,,ersons  n-iwht,  indeed,  impel  us  to  o/Pe 
".el.  more  at  so.ne  future  tin.e,  provi.lec    we  were    We 
H'C    mm,e.h„te  aeees.s  to  the  eon.forts  we  wante  1      r 
-r.selves    .nstead  of  waiting,   for  them   until   ..    ,  " 

Bnefly,  the.,  capital  enahles  production  to  lie  carrie.l 
im.VK  n.  the  means  for  the  aeco.nplishn.ent  o 
,^.'no„s  steps  m  the  ,.roductivc  process  prior  to  the 
-•mance  of  the  operations  involved  in  t  at  p,  1 
-re   nun,ero„s   these   steps  and  the   lonier    hi: 

-Iw  |ehn„,st  elapse  lK.n.re  the  ti,,shedeo„L„a 
---Js^  make  the.r  appearance,  the  n.ore  capital  is  re- 
It  may  be,   as  so„,e   lune  held,   that   capital   is   so 


i 
i 


i78 


KCONOMKS 


socially  iR-ccMsiirv  Hint  it  oukIiI  to  Ik;  providfd  l.y  cm,- 

niiiimlK'-'X'P''  <"•  ''^'  *''^"  ^*"'^'  ""  '•^''■*"'"  '^'""'' '"  •'"'•■ 
one  who  Clin  utilise  it;  hut  wliillar  it  is  iirovidc.i  U 
such  niciins  or  throuKh  tiic  ixistiiiK  comiictitive  iikuh v 
market  it  is  (luite  essential  to  progress.  In  this  s.n„ 
capital  is  not  the  enemy  of  lahor,  hut  is  the  in.lis|..ii- 
sahle  sujiiMirt  of  it. 

In  accounting  for  the  i)henomenon  that  present  eaiu- 
tal  is,  in  general,  scarce,  r.'lutively  to  the  (Icnimul,  «. 
arc  driven  to  the  conclusion  that  this  scarcity  is  dm  to 
the  excfssive  al)sorption.  in  modern  times,  of  capital  in 
the  form  of  i)resent  goods  for  the  |)roduction  of  <rno,U 
of  a  permanent  character— goods,  in  other  words.  \w- 
ing  in  their  nature  many  and  long  continued  umv 
These  uses  are  stretched  out.  as  it  were,  over  so  iims! 
a  period  of  time  that  the  numbers  of  them  which  ar. 
susceptible  of  immediate  utili/ation  are  small  m  pr"- 
portion  to  the  immediately  realizable  utilities  that  imve 
been  absorbed  in  the  making  of  them. 

237.  Raihi-nii  coimtniction  in  Vnited  States.— M 
illustration  drawn  from  the  history  of  railways  may  inak 
this  point  clear.  When  the  railway  system  was  beiii^  di 
velojjed  rapidly,  inmiediately  after  the  conclusion  of  tl 
Civil  War,  the  United  States  was  with  difficulty  al)lf  I 
borrow  the  amounts  necessary  for  the  construetinii  > 
lines  over  the  immense  unoccupied  spaces  which  iiittr 
vened  between  the  centres  of  popula''ot..  It  was.  tlu'rr 
fore,  indispensable  that  the  lines  should  be  constructeda 
a  minimum  of  cost.  The  possible  traf'5c  upon  them  ((ui 
not  justify  the  method  of  construction  which  hii.l  Ikj 
adopted  b"y  countries  in  which  the  jH.pulation  was  n\ 
lively  den'se  and  ii  which  trade  routes  of  impnitani 
had  already  been  establislied.  Thus  American  railw: 
construction  was  light  and  comparatively  inexpcnsKi 


fAI'ITAI,    AM)    I.NTKHKST  ^77 

-l-ury  .•a,..tal  not  ,.nly  .s,,,.i,„,,,  „,,  ,,,,«„        ;, 

-rcity  of  capitj  ,.n,i  «„„,;;,!;;  ;;:,."'^'^^'  '"'^•^'•-•^••''"^ 

In  order  to  ni.su.,-  this  <,uestion.  ,ve  must  hear  l,i 
nm..    what  h«.l  ocn.rrc-.l.     I„  the  carlv  seve  .t  ^  t 

".  «  States  ,.ro.hK.e.laM  i..siKnific«nt-„,„ou,  /..l^ 
IlKTc^ore  ,nost  of  the  iro„  for  the  raihvuvs  had  t  he 
|»'l".rted  fro,..  K,.«Ian,l.     The,e.  the  .len.«,.d  f  r   ro^ 

-Lausted.  ,.ew  furnaces  ,vere  "  hlown  in  •■  a,.     a1  ,^ 

;:;;;;;;;"  "^  "•""  «"•'  -«•  »<-*  were  ..,.«e..tiv  de. 

^Vages   advanced   enormouslv    nn,l    ti, 
-ni..K  the  iron  works  i,.    h    X„r  h  of  F  ,  T^""? 
i";l;e  Clyde  and  Forth  .iistrietstC.lfniS";  .^ 

ra  V  "  "*""'*"'fe'  *'«^  permanent  way  and  laving  the 
s,  other  groups  were  huil.iing  locomotives  and  car  ' 
«  others  n-ere  buil,li.,g  bridges  and  railway  statS,  s' 
■  '1  were  work.ng  at  high  pressure  and  wages  were 
J  t,vely  h,gh.  The  capital  subscribed  chieSyL  the 
J.  rnpean  .nvestor  went  into  payment  of  these  ^Les 
k>n..factunng  and  other  profits  etc  Tb«tT  t^ 
;P;;'vi.ied  for  the  daily  nfaintenar.::  for  t  1;^ 

'tnbut,..^  ,n  various  ways  to  the  equipment  of  them. 


11^  II 


278 


ECONOMICS 


Some  of  these  lines  niiglit  yield  a  return  to  tlie  capital  in 
the  shajje  of  dividends  at  a  more  or  less  distant  pciiixl. 
Many  were  destined  not  to  retiu'n  it  at  all. 

There  was  thus  an  enormous  eonversion  of  consum- 
able into  unconsumal)le  j^oods,  or  rather  into  gixuls 
which  wci'e  consimiable  only  at  some  remote  period. 
When  capital  is  circulating  actively,  when  the  produc- 
tive process  results  in  rapid  return,  capital  is  not  rcla 
lively  scarce  because  it  can  be  employed  over  and  ovtr 
again  within  a  short  j)eriod  of  time;  but  when  tiie 
velocity  of  the  return  of  capital  is  low,  capital  niiisl 
be  relatively  scarce  because  what  there  is  of  it  is  imt 
exjjeditiously  employed.  Tlius,  although  the  American 
railways  were  inexjiensively  constructed,  they  consunitd 
an  amount  of  liipiid  capital  which  proved  to  be  enibai-  F 
rassing  not  only  for  the  United  States  but  for  Kurojic.  I 


CHAPTER   VII 

THK    I.AXDOWXERS    SHARE 

259    Value  of  land  <lcpcmh  upon  rent-  -The  obvios- 
n-s  of  rent  as  the  share  of  one  of  the  factorst  °    . 
ucfon  vanes  ,„  different  countries.     In  Great  1  ri  a  n 
ml  m  Continental  Europe,  with  the  exception  o    ce  " 
ta.n  parts  of  France,  land  is  eustomarilv    .ossessed     v 
..e  person  and  cultivated  In-  another.     In'  the  St  d 
States  and  ,n  Canada  the  cultivator  is,  as  a  rule   the 
owner,  although  the  practice  of  renting  lan.l  Is'    ' 
«.n.e  common  ,n  the  United  States  duri.^.  recent  via  s 
t  .s  sf     rare  in  Canada.     Even  in  the  towns  i'^. 
ce  of  the  past  ,.-  hoth  countries  was  for  the  o    upa,^ 
of  a  house  to  own   t,  an.l  althouj,!,  the  in-actice  has  C 
"•■"•l.  niochfied.  es],ecially  in  the  larir  cities    i     st  II 
0  ta,ns  in  America  to  a  much  greater  ex    n' t  a     is 
-•ase  m  Europe.     The  buildin,.  of  apartment  hou  e 
''o«ever,  ,s  causmg  the  gradual  disappearar.ce  of  the 
^mall  .ouse  and  lawn  which  up  till  the  ,  resent  1  as  b^n 
charaeter.st,c  of  the  towns  in  the   United   SMes  an," 

It  is  thus  not  customary  in  America  to  speak  of 
ndm  terms  of  its  annua,  rent,  but  to  speakTf  it    n 
ems  of  the  pnce  at  which  it  is  estimated  it  mirf,t  be 
welmsed    or  .ts  value  "as  between  a  wilhng  1,  ve 
-la  wdhnp:  seller."     This  practice  has  had  sevcra 
'-fons,  one  of  them  being  the  general  adoption  o 
279 


'■.ii' 


!280 


ECONOJIICS 


the  method  of  taxing  land  upon  its  estimated  value  ami 
not  as  in  Great  Britain  upon  its  annual  rent.  Wliiie 
rent  as  an  element  in  distribution  Is  thus,  in  America, 
somewhat  obscured  by  the  mode  of  estimating  the  value 
of  land,  it  is  nevertheless  present  whether  or  not  it  is 
readily  recognizable. 

260.  Origin  of  rent. — The  historical  origin  of  tlit 
rent  of  agricultural  land  has  varied  in  different  coun- 
tries. In  those  countries  in  which  serfdom  survived 
until  it  was  surrounded  by  commercial  economical  con- 
ditions (as,  for  example,  in  Prussia,  where  serfdom  c(in- 
tinued  unt'l  1800,  and  in  Russia,  where  it  continued 
until  1861;,  rent  appears  to  have  originated  during  tlie 
era  of  serfdom.  Rent  under  these  conditions  was  really 
a  series  of  periodical  payments,  not  for  the  use  of  tlic 
land,  but  for  release  from  obligations  sometimes  at- 
tached to  the.  occupation  of  land  by  the  serf  and 
sometimes  attached  to  the  ownership  of  the  serf  by  his 
master. 

These  foundations  of  the  payment  of  periodical  rents 
were  often  confused,  although  sometimes  they  wert 
separated.  The  occupancy  of  the  land  did  not  dejiend 
upon  the  payment  of  rent  by  the  occupant.  Even  if 
he  did  not  pay  his  rent,  he  could  not  be  removed  from 
the  land.  His  movable  property  might  be  taken,  if  lie 
had  any;  if  it  were  taken,  however,  he  might  be  de- 
prived of  the  means  of  further  payment.  It  was  thus 
expedient  to  flog  or  to  imprison  him.  In  any  case,  lie 
could  not  be  deprived  of  the  land  which  it  was  his  duty 
to  cultivate. 

The  periodical  payments  which  he  made  in  order  to 
secure  release  from  the  obligation  to  render  personal 
labor  on  his  master's  fields  were  not  based  upon  tlif 
area  or  upon  the  value  of  the  product  of  the  land  occii- 


THK    LA.NDOWXERVS    SHAKE  gsi 

|.ied  by  him.  but  were  based  upon  tlie  value  of  the  labor 
wluch  b,s  master  customarily  exaeted  from  him 
Ihe  gradual  change  from  the  rendering  of  an  indefi 

of  a  dehn.te  amount  either  in  kind  or  in  money  cons 
tuted  an  important  step  toward  freedom.    Yet\he  la 

VV  hen  the  commercial  system  of  landholding  re„laced 
l.e  feudal  and  analogous  systems,  the  payment   '  ,' 
omanly  exacted  by  the  owners  of  serfLnTof  S" 

»ere  transformed  into  payments,  exacted  not  in  res^^  t 
o  commutafon  for  services,  but  in  respect  to  tlieX 

paney  ox  land,  although  they  were  in  sVme  regkTns  s  m 

;n  excess  of  the  amount  which  the  peasant  Sdp' 
We  hvmg  upon  the  produce  of  the  area  occupied  bv 

J  m.    It  was  possible  for  the  peasant  to  pay  the  amounts 

I'lf '  "T:'  ""*  ""'^^  ^'^^^  -"'I't'-^  only  when 
'n  1  untmg.  fishmg,  domestic  of  factory  industry  he 
could  supplement  his  income  from  the  land  in  such  a  wa! 
s  to  pay  the  rent  for  it.  Examples  of  Xse  so  called 
non-econom.c  rents  abounded  in  Russia  at  the  close  o 
Je  era  of  serfdom  and  they  survived  in  the  Scottish 

duced  led  to  legislation  upon  the  subject. 
-01.  Land  a»  a  commodih/.-The  rent  of  land  in 


oilier 
pulsorv 


■  that  is,  until  it  could  be 


commodity, 
attachment 


bought  and  sold  like 


any 


and  untd  there  was  no  longer  com' 


to  the  soil 


I'- 

'li'' 


282 


ECONOMICS 


It  cannot  be  denied  tliat  the  system  of  indefeasi))!- 
ownersliip  of  land  lias  certain  social  advantages,  it 
secures  a  country  in  the  pc.session  of  an  agriculluiMi 
population.  Under  the  pressin-e  of  con',>ulsory  lalMJi- 
upon  the  master's  fields  or  upon  the  peasants'  own  fields. 
in  order  to  iiaintain  themselves  or  to  pay  the  oblijratioiis 
due  by  them,  there  may  be  a  considerable  surplus  nl' 
product  over  the  actual  needs  of  the  population.  On  the 
other  hand,  in  spite  of  a  certain  material  prosperity 
which  is  not  incompatible  with  serfdom,  experience  lias 
shown  that  the  system  breeds  anomalous  human  rela- 
tions and  leads  to  deterioration  of  boih  of  the  classes 
concerned. 

AVhen,  however,  a  commercial  relation  is  established 
between  the  owner  of  the  land  and  the  occupier,  ditli- 
culties  01  another  kind  make  their  a})pearance.  Where 
the  poinilation  is  dense,  the  commercial  owner  of  land 
is  in  the  position  of  a  quasi-moiiopolist.  In  other  words, 
where  the  land  market  offers  a  limited  supply  in  relation 
to  demand,  the  landowners  can  exact  a  price  which 
may  amount  to  a  share  of  the  total  jiroduce  of  the  com- 
munity relatively  much  greater  than  the  share  obtain- 
able by  landowners  in  less  densely  populated  regions. 

262.  Similariti/  to  other  productive  enterprises.— 
The  causes  of  friction  between  landowner  and  land  cid- 
tivator  are  not,  however,  confined  to  such  cases.  Where 
the  agricultural  po])ulation  is  deficient  in  or  destitute  of 
agricultural  cajiital,  they  occupy  the  same  relative  j)osi- 
tion  with  regard  to  the  owner  of  the  land  as  landless 
workers  in  factories  occujiy  with  regard  to  their  eai- 
])loyers.  Both  classes  are  weak  ss-ilers  of  their  manna! 
labor. 

On  the  other  hand,  where  tlieie  is  competition  aniotif; 
landowners    for    skilled    farmers    (a    condition    vliicli 


TIIK    LA.VDOW.VEirs    SIIAHK  283 

,l!!!  H.T'  "*"  "'^  "^"■''^"""™'  -»'"ti«  i"  KnKlan,!) . 
e  0  „  ,  ,  ^  ^„^^,^,_^  UKricltural  capita. 
«  .e.e  the  la,.,  ,s  fertile  and  favorably  situated  with 
fem,ce  „  a  loc-al  n.arket  for  its  produce,  and  .vhcre 
tl  e  farm  leases  are  fairly  .lrau„,  there  is  a  suffieie,  t 
•■..Ivantage  ,„  the  division  of  risk  a„d  of  the  advane 

Ld  "■"  "''*""  "'■  ""^  'y'^''"'  "*'  "-".ting 

of  larul.  o,v,ng  cine.'ly  to  the  din.inutio,,  of  the 
1)0  .t,cal  mfiuence  of  the  landowners  as  a  class  esu^ 
-lly  ,n  Englan.l  and  France,  has  had  an  i^  poS 
eftect  upon  the  lan.l  market.  Large  estates  ha^e  be 
l.ro.n  upon  ,t  for  sale  with  the  consequence  that  tte 
lue  of  iand,  especial.v  the  land  surrounding  maZn 
Louses  together  with  the  value  of  the  houses  has  dec  i^  e 
J...  ly^  except  where  the  land  is  situateU  on  the  S 

rnti,  the  middle  of  the  last  cen,:::^:!;::;;':!;™;^ 

'"     "as    sold    at    small    prices    in    large    blocks    t 
pnvate  mdividuals  or  to  groups  of  perLs  J 

".  -lerstood  that  these  persons  were  to  make  erforts  ^o 
eolon,ze  the  r  Krants.  Don  ,tless  their  grea  ei  adtan- 
a^e  would  have  lain  i„  their  doing  so;  but  colonLa   on 

»  er  such  conchtions  is  very  difficult,  and  experien" 
.    n  the  Un.ted  States  an.l  in  Canada  has  sho.vn 
'iiat  it  IS  rarely  successful. 

Under  the  influence  of  the  pressure  of  population 
'>e    pohcy    was    changed,    homesteads    were    granted 
«.atu,tously  in  certain  regions  and   imnngratioT  „o 


i 


384 


ECONOMICS 


absorbed  the  free  grant  lands.  When  the  Western 
Provinces  of  Canada  were  opened  to  colonization 
through  the  construction  of  the  Canadian  Pacific  Rail- 
way, the  homestead  grant  plan  was  adojited,  althoufili 
large  areas  of  land  were  granted  to  railway  conipanii.s 
in  alternate  sections.  Immigration  has  here  also  bwn 
absorbing  the  homestead  grants  until  °re  long  there 
may  develop  a  scarcity  of  land  in  spite  of  the  magnitudu 
of  the  region.  It  may  yet  be  shown  that  homestemi 
grants  of  160  acres  per  family  were  too  generous  and 
that  long  before  the  country  has  been  fully  settled  in 
any  real  sense,  the  public  lands  will  all  have  been 
alienated  gratuitously  either  to  railway  companies  in- 
to homestead  settleis. 

264.  Increase  of  land  prices. — The  increasing  sear- 
city  and  remoteness  of  the  free  grant  lands  may  ehfck 
the  flow  of  immigration;  but  if  for  any  reason  this  flow 
continues,  the  price  of  land  must  rise.  A  con-para- 
tively  small  advance  in  price  is  likely  to  cause  the  break- 
ing up  of  the  larger  holdings,  especially  if  there  is  for 
any  reason  a  rise  in  the  rate  of  interest,  and  the  advance 
will  by  this  means  be  checked.  The  advance  in  tlie 
price  of  agricultural  land  must  have  the  effect  of  stimu- 
lating production,  and  where  the  land  is  suitable  for 
intensive  cultivation,  this  will  have  to  be  undertaken. 

265.  Who  benefits? — The  class  which  will  chiefly 
benefit  by  the  increase  in  the  price  of  land,  which  must 
take  place  should  the  demand  be  maintained,  will  be  the 
presently  existing  farming  class,  for  in  anticipation  "f 
an  imminent  scarcity  of  land,  farmers  have  been  buying 
land  heavily  in  the  vicinity  of  their  homesteads.  The 
newcomers  will  have  to  pay  the  increased  prices  to  these 
holders  or  "  old  livers  "  as  tliey  are  called  in  Eastern 
Europe. 


TliE    LAXDOWXKU'S    SHAKE  885 

Should  tlie  "neuconifis  "  be  unable  to  purchase  the 
land  for  iarmi..s  i)urposes,  althougli  tlicv  niiglit  pos- 
sess eap.tal  sufficient  for  the  business  of  farm.  ,g  apart 
from  the  amount  necessary  to  purr'  ase  the  land,  the 
system  of  renting  land  may  he  exj^ccted  to  extend  as 
It  has  done  in  Nebraska  and  other  states  of  the  Union. 
(Already  about  one-third  of  the  farmers  in  the  Ifnited 
States  re..t  the  farms  they  cultivate.)  This  system  of 
renting  from  small  holders  of  lan<l,  tends  to  bring  into 
existence  a  class  of  small  landowners  who  live  -ii  towns 
upon  the  rents  paid  to  them  by  the  farmers  of  their 
ands.  In  course  of  time,  owing  to  pressure  of  ])„p„. 
lation,  some  of  those  conditions  which  for  hundreds  of 
years  have  been  familiar  in  AVestern  Europe,  seem 
likely  to  reproduce  themselves  upon  this  side  of  the 
Atlantic' 

2ea  Theonj  of  rent.-Tlm  commercialization  of 
landholding  in  Western  Europe  in  the  eighteenth  cen- 
tury led  to  tlie  development  of  a  theory  of  land  rent 
as  the  growth  of  capitalistic  industry  at  an  earlier 
period  had  led  to  the  development  of  theories  of  inter- 
est. The  theory  of  rent,  as  it  emerged  at  the  end  of 
the  eighteenth  century  and  the  beginning  of  the  nine- 
teenth, has  not  been  subject  to  any  widely  accepted  or 
serious  modification.  It  is  based  upon  the  law  of  dimiii- 
isliing  returns  which  was  at  that  time  being  pushed  to 
extremes  in  all  directions.  Stated  in  its  briefest  form 
It  may  be  put  thus:  Rent  arises  because  the  fertility  of 
any  particular  area  of  land  is  Unite  and  because'  the 
fertility  of  different  areas  varies. 

If  the  application  of  successive  amounts  of  capita] 

Fl,;rl'/l'thrLl,"'-r''"'  '"/""*"■''  "'"'  "'•■  '■"".plicat,,!  system  of  l«„,|  tonur,- 
M  ■  VivWnn    ft/?  °'  ■■'••""I'- «Ke»,  will  l„.  .iuplicat«i  in  .\morica;  Imt  t  „i 


.i^maa 


386 


ECONOMICS 


hm 


and  labor  uixm  a  reitaiii  area  of  land  could  yield  con- 
tinuously increasing  (juantities  of  produce,  or  if  all  land 
were  of  equal  fertility,  there  would  be  no  rent.  Tlic 
historical  theory  of  rent  which  arises  from  this  state- 
ment is  that  rent  arose  through  necessity,  luider  tii< 
pressure  of  population  and  the  conse(iuent  demand  I'nr 
the  cultivation  of  soils  inferior  to  those  ])reviously  in 
cultivation.  The  inferiority  is  due  not  merely  or  cMri 
necessarily  to  inferior  fertility,  but  to  inferior  pto- 
ductivity,  the  facilities  for  cultivation  and  the  distance 
from  the  market  being  taken  into  account.  Kent  thus 
appears  as  a  surplus  or  net  product  which  is  yielded  by 
a  particular  area  of  land,  over  and  above  the  returns  to 
the  capital  and  labor  expended  in  jjroduction,  tlif 
amounts  of  these  returns  being  determined  in  the  n- 
spective  eomjietitive  markets. 

207.  Rent  as  surplus. — Looked  at  from  t'"  an^iis 
of  the  other  sharers  in  distribution,  rent  ai)pears  as  ii 
surplus  emerging  above  the  normal  level  of  wages  and 
interest.  This  surplus  is  described  as  ecotiomic  rent. 
It  will  be  observed,  however,  that  the  idea  of  a  sur))liis 
arising  in  a  scheme  of  distribution  of  a  common  stuck 
among  several  claimants  is  not  jjrecisely  the  same  idea 
as  that  of  the  productivity  of  the  factor  of  land  as  sndi. 
The  landowner  as  landowner  does  not  organize  tiic 
productive  operation,  and  the  sur])lus  may  or  may  not 
arise  out  of  the  exercise  of  his  function  of  landowniuf;. 
The  suri)lus  may  fall  into  his  hands  owing  to  tlif 
strength  of  his  economic  ])osition:  but  if  he  were  ccn- 
nomieally  weak  he  could  not  obtain  it. 

Thus,  it  is  hardly  a  sufficient  explanation  of  rent  tn 
say  that  it  is  a  surplus.  There  is  a  sense,  howe\er  in 
which  rent,  interest  and  ))rofit  may  be  regarded  as  w\ 
lectively  constituting  a  surplus.     In  this  sense  labor  is 


TIIK    r.A.NDOWNKU'S    SIIAHK  887 

conceived  as  l)einff  lml)itually  rindiml  at  the  margin 
(if  siil).si.stciice  of  the  lulx.rer,  and  the  whole  cost  of  the 
productive  proc-ess  is  conceived  as  being  referable  to 
labor.  Therefore,  all  the  value  of  the  product  above 
the  cost  of  the  labor  is  suri)liis  value,  and  rent,  interest 
luid  profit  constitute  this  suri)lus  value. 

2(i8.  "Siir/ilim"    t/iion/    not    alicai/s   npplicablc.—  U 
may  be  suggested  that,  while  the  theorv  of  rent  which 
has  just  been  stated  briefly  is  applicable  to  several  im- 
portant cases  of  rent,  it  is  not  sufKcient  to  explain  all 
cases,  even  though  it  may  !«  accepted  as  sound  so  far 
as  It  goes.     It  docs  not  apply,  for  example,  to  those 
cases  of  non-economic  rents  to  which  reference  has  been 
made  ahnc.     The  jiarticular  case  of  rent  upon  which 
stress  is  laid  in  this  theory  is  the  case  of  rent  which 
IS  due  to  some  differential  advantage.     Ti:is  differen- 
tial advantage  arises  from  an  irdierent  property  in  the 
land  or  in  the  natural  agent.     The  fertility  of' a  piece 
ot  land  A  is  twice  as  great  as  the  fertility  of  a  piece  of 
I-nd  U;  the  rent  of  A  would  then  be  twice  that  of  B, 
ti.e  respective  fertilities  l)eing  calculated  not  from  zero 
but  from  the  point  which  in  either  case  is  just  .sufficient 
to  return  the  value  of  the  capital  and  labor  expended 
iipon  it,  as  estimated  in  the  market  for  the  produce  and 
in  the  markets  for  capital  and  labor. 

Land  is  suscejjtible  of  a  great  variety  of  uses,  and 
the  value  of  it  at  the  time  of  purchase  or  the  rent  ar- 
ranged for  at  the  time  of  entering  upon  a  lease  may 
l>e  very  distantly  related  to  the  use  to  which  the  land  is 
eventually  ],ut.  In  the  case  of  inci-easing  superio-ity 
"'  """  productive 


uases 


;seqi 
would  take  this  superiority  int 


purchas 


»s  it  was  j)racticabl,.  to  fr.resec  the  future.     I,.  ..,.„  .,. 
the  increasing  mobility  of  huid,  it  may  be  observed  that 


o  aecounl  insofar 
ti  vii.'w  of 


mi 


m 


S88 


KCONOMICS 


tliere  docs  not  seem  to  be  any  c-onsiderablc  odvantajje 
(granting  the  commercialization  and  tlie  consequent  si  li- 
jection  of  it  to  competition  in  the  market  for  land)  in 
separating  the  case  of  land  from  other  cases  of  vnhii; 
—such  as  commodities,  capital  and  labor— except  iiisi- 
far  as  it  is  absolutely  necessary  to  separate  one  categoiy 
from  another. 

269.  General  application  of  the  term  rent.— Then  are 
many  cases  of  differential  advantage  besides  that  (/f 
land  to  which  the  term  rent  may  be,  and  sometimes  is, 
applied.  We  may  speak  in  this  sense  of  the  rent  of 
waterpowers,  the  rent  of  machinery  of  different  types, 
and  we  may  s]>eak  of  the  rent  of  chemical  proccssts 
arising  from  their  differential  advantages.  We  niiiy 
even  speak  of  the  rent  of  ability  as  forming  that  part  of 
wages  or  salaries  which  is  due  to  a  man  on  account  of 
his  possession  of  some  special  aptitude.  Some  work- 
men acquire  great  dexterity  in  the  management  of  fur- 
naces for  the  production  of  steel;  others  for  the  manage- 
ment of  the  immense  lathes  upon  which  the  propeller 
shafts  of  steamships  are  bored  for  the  purpose  of  dimin- 
ishing their  weight,  etc.  Part  of  the  wages  of  these 
workmen  may  be  described  as  rent  of  ability.  A  liustc 
part  of  the  salaries  of  the  managers  or  managing  di- 
rectors of  large  industrial  enterprises  may  be  regarded 
as  "rent  of  ability." 


PART  IV:    CONSUMPTION 
CH/PTER   I 


Consumption  for  social  use 

270.  CUigsification  of  coK«Mm;;//on.— Although  con- 
stimption  is  the  goal  of  production,  and  is,  therefore, 
of  an  im|H)rtance  nt  least  ecjual  to  that  of  production, 
the  constituents  of  consumption  as  an  economic  depart- 
ment have  not  been  so  definitely  reduced  to  formal  ar- 
rangement as  have  those  of  production,  distribution  and 
exchange. 

In  general,  the  department  of  consumption  may  be 
said  to  concern  itself  with  the  demand  side  of  the  mar- 
ket as  production  concerns  itself  with  the  supply  side. 
We  may,  therefore,  consider  as  belonging  to  this  de- 
partment those  causes  of  variation  in  demand  to  some 
of  which  we  have  already  alluded  in  discussing  Ex- 
change. 

Consumption  may  be  regarded  as  comprising  th^ee 
important  categories: 
1.  Consumption  for  Social  Use: 

(a)  National  and  Civic  Consumption— involv- 
ing compulsory  demands  upon  the  resources 
of  the  people. 

(b)  Vohuitary — arising  from  benefactions,  en- 
dowments P'  d  the  like. 

C-I-id  ggg 


IP 


sso 


KCONOMICS 


2.  Consumption    for   Personal   Use — involving  li 
cussion  of  the  Standard  of  Comfort  or  noriiial 
level  of  consumption  of  the  ;K;ople,  inchuliiiK 
variations  from  the  normal  level— the  extremis 
being  luxury  and  famine. 

a.  Consumption  for  I'rrxluctivc  Use— involving  (K- 
mand  for  the  jnirpose  of  production  of 

(a)  Machinery,  raw  materials  and  partially  fin- 
ished g(K)ds. 

(b)  Men — under  this  head  might  be  disciissul 
appropriately  the  using  up  of  himian  energy 
and  life  in  production,  industrial  hygimi; 
and  pathology,  the  economic  value  of  po])ii- 
lation,  the  mobility  of  labor  and  the  move- 
ment of  population. 

The  reactions  of  consumption  or  demand 
upon  the  other  economic  processes  would 
also  fall  to  be  discussed  in  this  pleco. 
271.  National    consumption.— The    income    of   tlif 
government   insofar   as   it    is   derived    from   taxatiim 
must  be  regarded  as  a  deduction  from  the  aggrejjatt 
incomes  of  the  people  who  contribute  the  taxes;  insofar 
as  the  income  of  the  government  is  derived  from  direct 
services  to  the  people  who  enjoy  the  benefit  and  pay 
the  price  of  these  services,  the  income  of  the  govern- 
ment cannot  be  regarded  as  a  deduction  because  it  is 
received  for  corresponding  utilities  directly  rendered. 

Governmental  demand  may,  therefore,  be  diviiled 
into  two  classes:  the  demand  which  arises  from  cer- 
tain services  which  are  rendered  by  the  government  at 
the  general  charge,  that  is  to  say,  by  means  of  the  tax 
fund;  and  the  demand  which  arises  from  the  renderlnj! 
of  specific  senices  which  are  paid  for  by  the  people  tn  I 
whom  they  are  rendered.    Thus,  the  service  of  national 


(•()\sf.Mi"ri(,v  lou  sodAf.  rsi;         mi 

.Icfencf  is  ,mi<l  f„r  „„t  „(•  iIh;  kcmcvI  Ihx  f„„.N  „r  .,„ 
..'•ca.si..r.  ,M.t  of  .pcrial  «„r  tax  (•..n.ls.  or  ,«,t  „(  fh.  „n,- 
ocf.l.s  of  |„„„s   ruist-.!  «,..l  dmrKcl   „,,„„   ^,„,,„    .„ 
s|.ec,«l  f..„,|s.  „„,l  is  ,,,.s.,.nf,l  f„  k-  raulcml  in  tho  uni- 
versal .ntercst-fhose  who  pay  n„  taxes  ..njovinK  the 
.same  Ik-u.Ms  us  thnsc-  who  ,lo.     ()„  t|,,  „t„c.;  Imn.l.  the 
".St  of  the  scrv,..e  of  the  Post  Ofllcv  is.  as  a  rule,  .le- 
fraycl  out  of  the  postal  revenues.     This  is  not  always 
the  case.     I-or  n.any  years  after  the  penny  post  was 
".«t.t..te,l  ,n  KuKland.  the  Post  Offle..  reven'.es  were 
msufheient  to  meet  the  expen.iitures.     Th.-  I'ostal  Tele- 
graph system  has  always  been  .on.h.ete.l  at  a  loss  which 
IwKl  to  he  n>et  out  of  other  sources  of  revenue.     Kven 
"-.w.  .f  interest  upon  the  capital  investe.l  in  the  I'ost 
Ofhee  IS  consMlercl,  the  Hritish  I'ost  Office  l.arely  pays 

States  Post  Office  are  in  a  less  favorable  position  he- 
vMse  of  the  u.fenor  density  of  population.  T!„.  Post 
ffice  m  general,  may  he  said  nearly  to  pay  its  way. 
tlie  balance  against  .t.  where  such  a  balance  occurs  be- 
".K  met  out  of  the  general  tax  fund.  The  case  of  a 
puM.c  service  of  this  kind  making  a  ,,rofit  is  considere.i 

There  are  certain  forms  of  governmental  expen.Iiture 

■ch  do  not  directly  benefit  the  whole  of  the  peo  I 

wh,ch  do  directly  benefit  some  at  the  expense  of  the 

general  tax  fund.     The  maintenance  of  the  ,.oor  where 

iicre  IS  a  national  poor  law.  the  ,,rovision  of  education 

"  lere  this  is  <lone  gratuitously  or  below  cost  an<l  the 

a.lnnnistration  of  justice  are  examples  of  this  order  of 

expenditure.     Indee.l,  i„  most  countries  at  the  present 

'■me,    governmental    administration    is    lK..ing    utilized 

rm.re  aiul  more   as   an   agent    for  the  distribution   of 

«"lth,  sometimes  with  the  avowed  intention  of  dimin- 


i 


292 


ECONOMICS 


ishing  the  inequalities  which  are  brought  about  by  dis- 
tribution unregulated  by  government — what  Adam 
Smith  called  "natural  distribution."  ' 

272.  Effect  of  government  consumption  upon  ih- 
mand.—The  expenditure  of  the  government  invoKts 
consumption  and  thus  involves  demand.  The  publir 
offices,  docks,  state  railways,  roads,  bridges,  etc.,  con- 
structed to  the  order  of  the  government,  constitute, 
especially  in  new  countries,  a  large  part  of  the  consuiii])- 
tion  of  structural  material  and  other  commodities,  and 
a  large  part  of  the  demand  for  labor.  Some  of  tliisc 
works  no  doubt  would  have  been  undertaken  by  pri\  ato 
individuals  or  groups  of  individuals  had  the  govern- 
ment not  undertaken  them,  but  many  of  them  woidd 
not;  because  private  enterprise  is  not  sufficiently  de- 
veloped; because  it  is  otherwise  fully  engaged;  beeanse 
the  nature  of  the  enterprise,  useful  though  it  may  l)e, 
is  such  that  specific  return  cannot  be  expected,  or  he- 
cause  the  enterprise  would  be  difficult  to  organize  ntlier- 
wise  than  governmentally ;  or  because,  as  in  the  case  cif 
the  Panama  Canal,  private  enterprise  has  failed,  or  k- 
cause  the  enterprise  has  been  undertaken  by  the  govern- 
ment merely  in  obedience  to  local  pressure  and  without 
any  prospect  of  eventual  usefulness,  the  only  objett 
being  the  local  expenditure. 

273.  Diversion  of  capitoL— Governmental  employ- 
ment of  capital  means,  however,  diversion  of  it  from 
use  by  other  agencies.  Even  if  the  government  re- 
frained from  using  national  accumulations  and  bor- 
rowed abroad  for  its  requirements,  its  operations  wouW 
restrict  the  credit  of  the  nation  otherwise.  If  -ve  were 
to  suppose  that  the  amount  of  capital  available  ' 

'  How  tar  govcmajental  distribulioD  can  reach  the  Jcsired  end  is  di«<  k 
elsewhere. 


CONSUMPTION    roR    SOCIAL    USE  293 

either  governmental  or  private  employment  is  a  fixed 
<iuant,ty,  which  would  be  utilised  in  any  event,  then  its 
.l.rect,o„.  provi,led  it  were  .„.,.;.  .yc.l  ...ually  produc- 
tively, would  not  affect  tlie  "  ational  <llv„len<l" 

But  capital  cannot  be  looktJ  npon  ,s  ,,  fixed  quantity 
m  any  one  country     The  governn.er.t  or  private  in- 
<  .viduals  may  draw  capital  from  abroad,  and  sometimes 
the  government  ca,i  do  so  when   private  individuals 
cannot.    Moreover,  if  the  government  draws  more  than 
a  certam  amount   (this  amount  depending  upon  tl- 
conditions  of  the  market),  private  individuals  in  the 
same  country  may  find  it  difficult  to  draw  enough  for 
he,r  requirements  or,  indeed,  any  at  all.     Thus,  unpro- 
ductive expenditure  by  the  government  may  act  very 
injunously  by  absorbing  the  borrowing  powers  of  the 
country  as  a  whole.     This  applies  also  where  the  ex- 
l.cnditure  is  not  necessarily  unproductive  in  tl,e  large 
run   but  only  unproductive  in  the  immediate  sense,  for 
e  demands  upon  the  market  are  the  same  in  amount, 
although  they  are  not  the  same  in  character 

The  heavy  borrowing  of  municipalities  in  Great  Brit- 
am  prior  to  1903  exercised  an  important  influence  in 
depriving  the  money  market  of  liquid  funds  seeking 
investment,  and  the  heavy  borrowing  of  the  Canadian 
So^ernments  and  municipalities  during  the  decade  be- 
tween 1903  and  1913  had  the  same  effect. 

If  the  character  of  the  consumption  initiated  by  the 
government  is  unproductive,  or  if  the  period  during 
«lnch  it  becomes  productive  is  very  remote,  such  con- 
sumption may  result  in  a  greater  diminution  of  the  re- 
sources of  the  nation  than  would  have  been  the  case  had 
the  government  refrained  from  the  enterprise  alto- 
gether. On  the  other  hand,  governmental  expenditure 
n.^y  te  more  wisely  conducted  than  private  expendi- 


'!f?"l 


iM 


294 


ECONOMICS 


ture  and  may,  therefore,  eventually  conduce  to  greater 
increase  in  the  "national  dividend." 

'271.  Voluntary  consumption  for  social  use, — In  the 
^liddle  Ages  such  consumption  was  probably  propor- 
tionately greater  than  it  has  been  in  modern  times. 
Bridges,  hospitals,  schools  and  colleges  were  built  and 
endowed  by  pious  benefactors.  Many  of  the  functions 
which  are  now  exercised  by  the  State  were  in  earlier 
times  exercised  by  the  people.  The  care  of  the  poor, 
for  example,  which  in  modern  European  countries  is  an 
affair  of  the  government,  was  in  the  ^Middle  Ages  an 
affair  of  the  pious.  In  modern  times  large  benefactions 
are  continually  being  made  for  public  purposes ;  parks, 
hospitals  and  other  public  places  are  being  given  by 
individuals  or  are  being  subscribed  for  by  many  for 
social  consumption.  Many  of  the  sums  of  money  so 
devoted  are  withdrawn  from  individual  expenditure 
and  from  immediately  productive  uses.  It  is  clear  that 
her;.,  also,  a  certain  proportion  between  the  productive 
consumption  and  consumption  which  is  not  directly  pro- 
ductive must  be  observed.  Even  charitable  endowment 
may  go  too  far.  A  charitable  trust  may  be  so  heavily 
endowed  and  so  administered  that  it  becomes  a  public 
danger.  Locking  up  large  sums  in  endowments  ami 
the  devotion  of  the  proceeds  of  estates  to  charitable  and 
to  ecclesiastical  purposes  have,  in  many  countries,  fre- 
quently assumed  so  great  dimensions  that  the  practices 
have  had  to  be  checked  by  legislation. 


CHAPTER   II 

CONSUMPTION    FOR    PERSONAL    USE 

275.  Personal  requiremcts.-Consumption  for  ner 
sonal  use  may  be  considered  under  the  same  thr  e  head 
as    ho       „^     „,,   „^,„,,^,   co„sumpt,o?hrs'^^: 
uiimeu.     iiiese    are:    nef pso  f I'oo 
luvnriVs      Tf  •    •   """•     "^'^'^ss't'es,    conveniences    and 

eauseXv  "V''%P'-*'^^"*  '""'"ent  to  be  considered,  be- 
cause  they  do  not  necessarily  or  directly  result    n  » 

iitt  sense  result  m  consumption, 
merent  races,  „  encounter  fc  rtd«  difference.   Po, 

295 


i 


!• 


296 


ECONOMICS 


the  nomadic  life,  food  is  essential  always,  clothing  gen- 
erally, shelter  occasionally.  For  settled  husbandry  or 
industry,  shelter  and  clotiiing  are  almost,  if  not  (luitc 
as  essential  as  food;  indeed,  social  pressure  is  such  that 
in  some  races  the  desire  for  clothing  to  an  extent  wliich 
might  be  regarded  as  luxurious  is  stronger  than  the  de- 
sire for  food;  and  there  are  soii.c  groups  of  people  wlio 
live  penuriously  in  Iflrge  houses  because  they  attach  im- 
portance to  an  external  appearance  of  wealth.  Sudi 
expenses  may  be  unusual,  but  the  relative  importance 
which  people  attach  to  the  different  orders  of  consum- 
able ^raods  affects  demand  profoundly. 

276'.  Food.— An   inquiry   into   the  history   of  food 
would  reveal  an  extraordinary  diversity  of  plants,  ani- 
mals and  even  minerals  which  are  used  as  food.     Tiie 
law  of  substitution   plays   a  large   role.     When  one 
variety  of  food  is  difficult  to  procure,  other  varieties 
are  sought.    Thus,  when  the  grains  possessing  superior 
nutritive  power  or  superior  attractiveness  to  the  pal- 
ate are  scarce  and  expensive,  other  grains  and  even 
other  substances  than  grain  are  consumed.     In  Nortli- 
ern  Russia  and  in  Sweden  when  the  grain  harvest  i; 
poor  and  the  peasants  experience  a  deficiency,  they 
mingle  the  ground  inner  bark  of  the  pine  with  flour  in 
bread.     The  astringent  property  of  the  pine  bark  is 
indeed  valued  to  such  an  extent  that  even  when  grain 
is  not  scarce,  peasants  may  be  found  who  adopt  this 
practice.     When  the  grain  harvest  is  poor,  also,  tlie 
peasants  habitually  sell  their  grain,  which  they  can  do  on 
such  occasions  at  relatively  high  prices,  and  buy  potato.;s, 
which  though  not  so  nutritious,  nevertheless,  satisfy 
their  craving  for  food. 

Some  races  have  invincible  preferences  for  certain 
varieties  of  food  and  approach  other  varieties  with  great 


CON-SLLMPTIOX    FOR    I'KUSOXAL    USE         297 

reluctance,  although  tliese  may  be  consumed  freely  by 
ot!.eis.     Civilized  man  in  general  .h'slikcT  food  which 
1ms  become  putrid;  i)rimitive  man  is  in  general  not 
averse  from  consuming  fish  which  has  been,  to  his  palate 
improved  by  long  keeping,  and  even  civilized  man  likes 
Ins  game  "liigh."     So,  also,  the  delicaces  of  one  race 
are  the  abhorrence  of  others,  except  in  cases  of.  need 
lor  example,  the  so-called  edible  dog  is  regarded  as  a 
luxury  m  Chifia,  while  other  kinds  of  dog  are  not  con- 
sumed     In  Europe,  the  dog  is  not  usually  consumed  at 
a  I,  although  during  the  siege  of  Paris  in  1871  all  kinds 
of  (logs  were  to  be  obtained  on  the  stalls  of  the  butchers 
Horseflesh  is  extensively  consumed  in  Cxcrmany;    and 
perhaps  not  at  all  in  either  England  or  America.     The 
tabu  which  plays  so  large  a  part  in  primitive  social  or- 
(famzation  has  many  forms,  but  among  these  there  is  the 
tabu  of  certain  plants  or  animals  which  have  been  found 
Ml  general  or  on  occasion,  to  produce  disease.    In  regions 
vhere  the  species  in  question  do  not  produce  the  same 
consequences,  the  tabu  does  not  exis*-. 

The  appropriateness  of  food  depends  upon  latitude 
and  longitude.  In  the  tropics,  fruit  is  olentiful,  but 
at  certain  seasons  its  consumption  is  attended  with  dan- 
ger. One  of  the  difficulties  of  the  acclimatization  of 
ij.uropeans  in  the  tropics  is  the  reluctance  with  which 
tlie  European  consumes  the  same  food  as  that  which 
IS  consumed  by  the  native  tropical  races. 

The  relation  between  food  and  work  has  been  to 
some  extent  worked  out  in  connection  with  the  formu- 
lation of  army  and  prison  dietaries.  Details  cannot  be 
given  here;  the  dietaries  themselves  should  be  consulted 
-t  IS  very  clear  that  industrial  efficiency,  insofar  as 
.  depends  upon  the  exercise  of  muscular  energy,  must 
'lei'end  eventually  upon  the  constant  recuperation  of 


I 


«98 


KtoNo:\ncs 


that   energy   by   appropriate  and   readily   assimilai)k 
food. 

277.  Clotlihig.— The  customs  regarding  clothing 
have  radically  changed  since  the  end  of  the  eightee:itli 
century.  Until  about  that  time  the  people  of  eacii  coun- 
try, each  district,  and  in  some  countries,  each  villaf>i', 
wore  a  characteristic  dress,  and  their  dress  was  furtliir 
differentiated  according  to  the  class,  profession  or  traik' 
to  which  they  belonged.  This  state  of  matters  was  not 
due  to  legislation,  although  legislation  sometimes  en- 
forced an  already  established  practice.  It  was  due  to 
the  independent  evolution  of  design  in  clothing  on  tlie 
part  of  people  who  made  their  own  clothing  for  tlie 
special  purposes  of  their  own  handicraft  or  profession, 
and  who  sometimes  bestowed  skill  and  leisure  upon  its 
decoration. 

The  art  of  embroidery  and  lace-making  were  miieli 
practised  throughout  Europe,  and  the  products  of  these 
arts  in  different  regions  were  cliaracterized  by  the  differ- 
ence in  design  which  arose  from  the  circumstance  tliut 
in  each  place  the  growth  was  indigenous.  The  laces  of 
Venice,  Valenciennes,  Brussels  and  Honiton  were 
among  the  most  celebrated.  The  people  of  Brittany 
and  those  of  the  Landes,  in  France,  and  many  of  tiie 
villagers  in  different  parts  of  Austria  still  wear  the 
characteristic  costumes  of  their  villages.  In  Somerset- 
shire in  England  embroidered  "  smocks  "  may  still  be 
worn  by  farm  laborers  as  the  "blouse"  is  still  worn  by 
the  Parisian  artisan.  The  Japanese  artisi'  wears  a 
coat  upon  which  his  trade  is  indicated  by  the  sign  for  it. 
Survivals  also  occur  everywhere  in  the  preacher's  gown, 
in  the  gaiters  and  apron  of  the  bishop,  in  the  doctor's 
hood,  in  the  silk  gown  of  the  King's  Counsel,  and,  ahove 
all,  in  the  uniform  of  the  policeman  and  the  soldier. 


COXSUMPTIOX    FOH    I'KUSONAL    USE         299 

Since  tlie  growth  of  variety  in  design  was  due  to 
mdigenous  nmnufaeture  in  various  places,  tl.ere  was  a 
tendency  toward  general  unifoiniitv  so  soon  as  the 
nmnufaeture  of  certai.i  textiles  became  concentrated  in 
one  or  in  a  few  places.  The  risk  attending  the  wear- 
ing "f  expensive  clothing  and  tlie  destruction  of  aris- 
tocracy in  France  contributed  to  the  cliange,  but  the 
policy  of  centralization  and  uniformity  of  the  Xa- 
poleonic  regime  did  more  to  carry  the  change  in  cloth- 
ing into  effect  in  that  country.  Throughout  Europe 
generally,  the  decay  of  class  .listinctions  contributed 
«iti,  the  causes  relating  especially  to  manufacture,  to- 
'vards  other  results  which  may  now  be  seen. 

It  IS  quite  impossible  from  the  clothing  of  a  person 
to  determine  to  what  country  in  Europe  he  belongs, 
and  It  cannot  be  affirmed  with  certainty,  except   in 
extreme  cases,  what  is  his  profession,  trad"e  or  position 
■n  society.     The  same  is  true,  also,  of  America.     The 
manufacture  of  ready-made  clothing  was  practically 
unknown  m  1830;  now  the  ready-made  clothier  mav  be 
said  to  clothe  both  man  and  woman  kind.    The  stand- 
ardization of  clothing  has  followed  tlie  extension  of  its 
manufacture,  and  uniformity  has  been  the  necessary 
consequence.     Formerly,  where  every  stranger  in  Paris 
wore  an  unique  costume-the  Arab  in  his  burnous  and 
he  peasant  of  the  Landes  in  his  velvet  jacket  and  silver 
buttons  might  be  seen  any  day  and  no  one  turned  to 
ook-now  where  everyone  looks  alike,  a  strange  cos- 
tume attracts  unwelcome  attention.     This  is  true  of  al- 
most every  city  in  Europe  or  America.     In  Asia,  Japan 
only  has  to  a  slight  extent,  and  only  in  the  cities,  adopted 
i-uropean  uniformity. 
278.  Shelter.^  The  question  of  housing  people  is  not 
ss  important  than  that  of  clothing  them.     Housing 


4 


M 


"ii 


:.1 


300 


FX'ONO.MICS 


also  has  a  long  and  varied  history.  The  growth  of 
domestic  comfort  is,  however,  a  very  modern  affair.  Tiie 
])alaces  of  the  I'haraohs  and  of  other  Eastern  sovereiniis 
of  early  civilization  were  sometimes  very  extensive. 
They  had  numerous  rooms  and  evidently  were  maiuifrtd 
by  a  formidable  administration;  but  there  is  little  evi- 
dence of  comfort  in  their  interiors. 

Glass  is  an  ancient  invention,  but  its  production  in 
large  sheets  is  comparatively  modern.  Until  the  cldse 
of  the  Middle  Ages  there  was  very  little  glass  even  in  tiie 
great  houses.  Rooms  were  dark  and  ill  ventilated  or 
they  were  open  to  the  wind.  Horn  was  used  to  some 
extent,  but  even  when  thin  it  is  not  extremely  trans- 
lucent and  cannot  be  obtained  in  large  pieces.  Oiieil 
paper  has  been  used  in  Jaj)an  for  ages,  but  it  does  not 
appear  to  have  been  used  for  windows  in  Europe. 

Chimneys  were  uncommon  even  in  great  houses  un- 
til after  the  Middle  Ages,  and  there  are  numerous  eoin- 
forts  of  a  minor  kind  which  in  the  medieval  house  were 
unknown. 

Those  who  have  seen  a  peasant  cabin  lighted  by  a 
single  rushlight  will  realize  what  the  interior  of  a  house 
was  like  before  candles  were  introduced.  There  was, 
indeed,  little  light  in  any  houses  until  the  use  of  gas 
as  an  illuminant  was  adopted  in  the  beginning  of  tiie 
nineteenth  century.  There  are,  or  were,  until  recently, 
towns  in  northern  Italy  where  oil  lamps  were  hoisted  at 
street  corners  by  means  of  a  rope  and  pulley.  Tiie 
darkness  of  the  towns  until  the  middle  of  the  nineteentii 
century  offered  facilities  for  crime  and  diminished  tlie 
duration  of  the  working  day  in  many  industries.  Elec- 
tric lighting  has  transformed  the  streets  and  has  led  in- 
cidentally to  great  improvement  in  gas  appliances. 
Numerous  inventions  have  made  the  interiors  of  houses 


CONSUMPTION    1-OU    I'KHSONAL    USK         301 

potentially  and  to  a  great  extent  actually,  vastly  more 
ab,table  than  they  were  a  hundre.l  and  fifty  yearsZ 
l...t  tl  e  same  .mprovement  cannot  Ik;  said  to  have  taken 
place  externally.     Domestic  architecture  has  not  kept 
pace  with  Hiterior  domestic  devices. 

279  Philanthropic  housing  crperimenU  in  Europe. 
-In  the  villages  and  small  r  to«ns  of  western  Europe 
workmen  frequently  own  the  houses  they  occupy;  but 

iw  0^7  "■■'>:"  *'^'"'"«"  ^"■■^^-  *'--  «-  P"i''t  "f 
r.  1 ,  r  ""*"  '*  ''  "°*  "'*''*<^*''^'-  'l^'^i'-'^We  that 
klZ  ^'°  7'V^  '*  "^'•^  «"''"^'«»y  practicable. 
I  be  ownership  of  a  house  limits  his  freedom  of  move- 
ment and  thus,  on  occasion,  fixes  him  to  a  particular 
employment  and  thus  limits  his  earnings  P"*'™'""^ 

The  earlier  experiments  in  the  housing  problem- 
Jose  for  example,  of  the  Peabody  Trust  and  Lord 
Rowton  in  London;  those  of  the  municipalities  of  Glas 

urhin  r    '''V"'''"^  °"*  ^'^"'^  '^'  development 
urban  transportation.     It  was  then  supposed  that 

lb   "dtirrr^'.^  r  "^'•'  "^  J'™^"''*^ '"  the  scene 
<i  bis  daily  labors;  that  he  could  afford  neither  the  time 
or  the  money  to  transport  himself  from  a  d   ta." 
consequence  of  that  doctrine,  the  tenement  house.^ 

m  liLnf^  °''"P"u'""  "^  -"'•kingmen  under  these 

mi-ph.Ianthropic  schemes  were  invariably  built  within 

f.  industrial  districts,  and  fi^quently  on  land  wS 

t     ef"  eT".  'f '"*""'  P^'-P"^^^  ""'»  "■"-''  -««. 

xneWr        "^     '"  ''•^"'-     '^'"^  S^""«l  "-^^"It  of  those 

ET ^  7,'  ""'•  "'"'""'•'^-  '■•^'  «">'  -"--  -  -ti- 
ts «      .       "'"  «"f-P«ted.    Even  at  rents  which 

s  ed   tT         r  "'  """"^  *  '"••  '•"'*  "P™  the  capital 

ested   the  rents  were  so  high  that  only  the  elite  of 

the  working  class  couh?  occupy  them,  and  those  for 


^mBm 


3(H 


KCOXO.MUS 


whom  tlicy  were  primarily  intcniled  coulJ  not  aironl  \u 
do  so. 

At  a  time  when  the  professional  classes  and  oUrts 
■with  incomes  only  a  little  higher  than  those  of  workinu- 
men  were  mi.xious  to  get  into  the  suburbs  of  towns, 
where  they  might  have  fresh  uir,  cheap  land,  modiTiiti' 
rents,  the  workingman  was  provided  by  well-meaning 
but  mistaken  i)bilantbroi)y  with  houses  in  the  centiv  nl' 
towns  at  a  ruinously  low  rent  to  the  promoters  ol'  the 
enterprise,  and  a  ruinously  high  rent  to  the  workinu- 
man.  In  some  cases  counsel  that  appeared  to  Ik;  \vis(r 
j)revailed,  but  even  this  was  rendered  of  little  ettVct  \n 
neglect  of  some  fact  in  human  nature  which  slidiild 
have  been  taken  into  account. 

280.  Tjipiciil  re-'iltx. — Nothing,  for  example,  conlil 
be  more  magnificent  vr  more  dismal  than  Pullman  City. 
near  Chicago,  or  the  similar  experiment  of  M.  (Jddiii 
at  Guise,  in  France.  Both  of  these  housing  experi- 
ments were  carried  out  in  newly  created  industrial 
centres,  and  they  might  have  been  successful  ha<l  tlit 
promoters  not  desired  to  standardize  houses  as  tiiev 
standardized,  on  the  one  hand,  sleeping  cars,  and  on  tiie 
other,  kitchen  stoves. 

While  enthusiastic  interest  in  any  social  scheme  is 
very  valuable  to  the  promoters  as  p  discipline,  it  is  usu- 
ally of  small  importance  to  those  who  most  need  the 
aid  of  philanthropy,  and  who  are  also,  no  doubt,  re- 
luctant to  ask  for  it.  The  reason  for  the  disapiioint- 
ment  which  usually  attends  i)liilanthro])ic  housing' 
schemes  is  that  such  housing  experiments  are  usually 
accompanied  by  efforts  for  the  improvement  of  tlie 
people.  Working  people  in  steady  employment  do  not 
care  to  be  patronized,  do  not  care  to  have  the  locality 
where  they  must  live  determined  for  them,  and,  above 


CONSIMPTIOX    FOU    I'KUSONAL    U8K        .,03 

all.  .lo  rH,t  en,-e  to  k-  en>l,nrra.s.sc.l  by  regulations.    Tl.cy 
are  .l.sposc.i  to  I.„y  their  l,ous.s  or  to  ret  then  on  the 

ILe  extension  of  municipal  iHmn.larie.s  nn.l  the  ,1c- 
veIo,.n.ent  of  urban  an.l  radial  transportation     as  al 
-.1    he  problen.  „,„terially.     Vet  tul  arbitr  ry  s  le  . 

kelvt  "  "'•;  """l"''"^'  '"•  -ni-pl.iI„„tbropic  a^eney 
IS  likely  to  result  in  (lisai)i)ointnient 

281.  Krpcrimch  h,/  r,«y,%r«.-Experiments   in 

it  the  e in  r".-'  '"'*  '"■•  *''^'  >■"""«-  '"-»'«- 

'  "tcupj  the  owner's  houses.    An  instance  of  both  of 

tiese   objections   is   to   be    found   in    an    expeWment 

l"c;h    was    made    many    years    ago    bv    the    wV 

a  Zy^  ■"'"'''  "'"^  '""^■^  '■'•"'"  Glasgow 
P"^es.  As  .t  was  at  a  eonsiderable  distance  from  the 
-rest  centre  of  population,  the  com^anv  bu^lt  a 
•n.ber  of  houses  for  the  purpose  of  providing  accom! 
"XHlation  for  its  workers.  The  workers  who  were  r^ 
™.ted  by  ,t  bad  lived  in  the  extreme  east  end  of  the 
ne  :':      ^  "7'"  "  "  '•^•^'"•"^  *'-  -*--e  west  end 

.s.ely    while  the  ,vomen  were  extensively  employed 
'"  the  factories  in  the  east  end.  ^   • 


804 


ECONOMICS 


Partly  for  this  rea«<iri  anil  partly  because  the  nun 
conceived  that  they  would  in  sonic  measure  place  tlma- 
selves  in  the  power  of  the  company  and  would  diminisli 
their  opportunities  for  changing  tlwir  employment  il 
they  wished  to  do  so,  they  continued  to  travel  daily  Hi, 
twelve  miles  which  intervened  U-tween  their  accustom. d 
houses  and  the  works  where  they  were  emi)loyed.  Tin  y 
did  this  in  spite  of  the  fact  that  their  houses  were  situ- 
ated in  what  may  fairly  he  called  "slums,"  while  tlic 
works  were  in  a  healthy  suburl)an  neighborhood,  at 
that  time  almost  unbuilt  upon.  T»>cy  were  enabk.l  to 
perform  the  daily  journey  by  means  of  extremely  low 
weekly  (conmmtation)  tickets  on  the  railwa\'. 

282.  U0U8CS  oxcned  by  workmen.— Jn  the  industrial 
towns  and  on  the  boundaries  of  the  great  cities  in  Can- 
ada, the  workmen  own  the  houses  they  occupy,  to  an 
extent  quite  unknown  in  Europe.  The  relative  elas- 
ticity of  the  municipal  building  regulations,  as  com- 
pared with  those  of  European  cities,  accounts  for  tins 
condition  to  a  large  extent. 

In  1905  and  1906  a  ring  of  workmen  s  houses  ot  tli. 
simplest  kind  of  construction  grew  up  round  Toronto 
Most  of  the  groups  of  houses  were  built  upon  lainl 
which  at  that  time  had  not  been  brought  within  the 
municipal  boundaries.  There  were  no  streets,  altl.(.u^'ll 
there  were  street  allowances;  there  was  no  drainage,  no 
water  supply,  nor  were  there  any  civic  services  -.Mat- 
ever  The  'land  was  cheap;  $4  per  foot  frontage 
(amounting  to  about  5  to  6  cents  per  square  foot)  was 
the  normal  price.  Thus,  for  $100,  payable  in  msta 
ments,  a  workman  could  acquire  fifty  feet  of  land  fr»" 
age;  for  $50  to  $100  he  could  build  a  rude  "shack  ^vhlcll 
was  sufficient,  after  a  fashion,  to  house  his  family.  >^ 
long  as  these  new,  imperfectly  urbanized  areas  «ere 


CONSUAirTION    FOR    PKKSONAL    USIi        a03 

seantilr  inlml.ite.l,  conditions  were  <|uitc  endurable;  Imt 
as  the  Jmcks"  l)ecanit  more  nunRroiis  luid  flic  |)oi)„- 
Uion  more  dense,  the  al)sence  of  j)ro|H.T  sanitation,  fire 
protection  and  the  like  Rndcred  the  existence  of  this 
•nng  of  shacks"  more  or  less  of  a  puhlie  danger.  The 
iKHindaries  of  the  city  have  1h;-.:>  extended,  and  the 
•sliacks"  hove  been  gradually  replaced  by  brick  houses 
"r  have  been  repaired  with  brick.  The  value  of  the 
land  has  advanced  considerably  and  the  generation  of 
Mi.rkmen  who  built  "shack  town"  has  benefited  by  this 
advance.  Hut  the  problem  of  botising  for  those  who 
« tre  not  forttmate  enough  to  arrive  in  time  to  take  a.l- 
vaiitage  of  the  conditions  of  190.-,  and  1900,  is  as  acute 
as  it  was  before  "shack  town"  existed. 

'2HH.  Subject  to  economic  laxis.— It  is  obvious  that 
the  provision  of  housing  accommodations  upon  a  scale 
commensurate  with  the  growing  industrial  population 
IS  quite  beyond  merely  philanthropic  or  semi-philan- 
thropic agencies.  The  demand  for  houses,  in  so  far  as 
It  is  effective,  may  be  counted  upon  eventually  to  result 
in  an  adeq-^^  v  ^..  This  has  been  the  «iK;rience 
of  aU  citie-  \-  n,ay,  indeed,  as  it  does  occa- 

sionall}-,  t       ..J    ..  tive  demand.     In  Great  Brit- 

am  the  normal  course  of  the  history  of  housing  is  as 
follows : 

When  industry  is  brisk,  when  peo|)le  crowd  into  the 
towns  in  consequence  of  the  difference  between  urban 
and  rural  wages,  there  is  a  great  demand  for  houses, 
rents  advance  and  there  is  a  strong  inducement  to  build. 
But  the  high  rents  notwithstanding,  capital  invested  in 
house  property  rented  to  working  people  does  not  as 
matter  of  experience  yield  a  high  net  return  under  nor- 
mal conditions.  The  depreciation,  the  trouble  of  col- 
lecting rents,  and  the  risk  of  loss  are  all  considerable. 

C— I— 40 


308  ECONOMICS 

Compared  with  the  profits  which  may  be  obtained  from 
manufacturing  industry  in  periods  of  brisk  trade,  the 
business  of  house  letting  is  not  remunerative.     It  is  thus 
not  until  the  period  of  brisk  trade  is  over  and  capital, 
which  has  been  occupied  or  has  just  been  made  in  busi- 
ness, is  seeking  investment,  that  building  begins  before 
rents  fall  from  a  cessation  of  the  influx  of  population. 
The  same  conditions  obtain,  other  things  being  equal, 
in  new  countries,  with  this  qualification,  that  under  a 
system  of  protection,  where  such  exists,  the  profits  of 
Manufacturing  or  trading  enterprise  are  even  under 
normal  conditions  so  much  greater  than  the  customan- 
yield  from  rented  property,  that  there  is.  little  induce- 
ment  to  embark  in  the  house   proprietary   business, 
Housing  is  thus  more  likely  to  be  a  continuous  problem 
in  a  new  country  than  in  an  old  one.  even  though  the 
price  of  urban  land  may  be  low.     If.  however  the  price 
of  urban  land  is  fbrced  upward  by  iemand  for  manu- 
facturing or  trading  purposes,  working  people  and 
others  who  desire  houses  at  moderate  rents  or  at  a  mod- 
erate price  must  go  outside  of  the  boundaries  of  the 
cities  to  procure  them.  , 

It  should  be  observed  that  insofar  as  by  means  o 
philanthropic  or  semi-philanthropic  effort  commer.a 
house  building  is  met  by  subsidized  competition,  th 
may  be  a  temporary  reduction  of  rents,  because  o  the 
"creased  supply  of  houses,  but  if  this  occurs  the  induce- 
mrtsten^'r  into  the  business  will  be  diminished  an^ 
unless  increased  philanthropic  efforts  are  maj  *  « 
will  be  a  tendency  for  rents  to  advance  to  their  former 
level,  provided  the  demand  for  houses  increases. 

When  the  supply  of  houses  is  deficient  in  relation  to 
the  demand  for  them,  there  is  usually  much  overc  o. 
ing.    When  this  condition  occurs  it  is  necessary,  in 


CONSUMPTION    FOR    PEKSONAL    USE        307 


interests  of  public  health,  to  enact  and  to  enforce  strin- 
gent measures  to  prevent  it.  If  the  enforcement  of 
such  measures  is  not  continuous  and  uniform,  it  may 
lead  to  further  increase  of  rent  in  certain  localities.  If, 
however,  it  is  continuous  and  uniform,  it  will  tend  to 
disperse  the  population  and  to  prevent  undue  density  in 
iny  one  locality. 

284.  Miscellaneous  personal  consumption. — In  the 
rural  districts  of  all  countries,  miscellaneous  consump- 
tion is  much  less  than  in  towns,  although  during  the 
past  century  the  general  increase  of  such  consumption 
has  been  manifest.  The  extent  and  character  of  mis- 
cellaneous consumption  varies,  however,  in  different 
races,  and  varies  also  with  the  income  among  people  of 
the  same  race.  The  Italian  peanut  vendor  in  New 
York,  no  matter  how  slender  his  income,  spends  his 
evenings  at  the  Marionette  Theatre,  as  the  Jewish  gar- 
ment worker  spends  his  at  one  of  the  Yiddish  theatres 
or  at  one  of  the  numerous  Jewish  clubs  in  New  York. 
In  Russia,  a  concertina  has  I)ecome  almost  as  necessary 
to  the  peasant  as  a  red  shirt  for  holidays.  The  so-called 
"millinery  openings"  at  Winnipeg  indicate  a  large  "mis- 
cellaneous consumption"  in  farmers'  families  in  the 
North  West.  In  the  towns  everywhere  amusements  of 
many  kinds  absorb  much  of  the  earnings  of  people  of 
all  classes. 

Among  workingmen,  as  among  the  professional 
classes,  miscellaneous  expenditure  has  increased  with 
tlie  leisure  obtained  by  the  shortening  of  the  hours  of 
lalwr  and  by  the  increase  of  professional  incomes.  Life 
ill  general  has  become  less  rigid  and  more  varied.  Life 
involves  more  strain  and  requires  more  relaxation.  It 
has  become  evident  that  in  times  of  prosperous  trade, 
the  miscellaneous  expenditure  of  all  trading  classes  as- 


308 


ECONOMICS 


sumes  large  proportions.  Luxurious  expenditure  ui)oii 
automobiles  and  the  like  accounts,  indeed,  sometimes  for 
a  very  considerable  proportion  of  income.  The  con- 
centration of  the  population  in  towns  has  contributed 
largely  to  the  increase  of  the  total  of  luxurious  expend,- 
ture  bv  the  people. 

Increase  in  miscellaneous  exi^enditure  is,  m  general. 
a  decisive  indication  of  a  change  in  the  standard  of 
comfort,  even  though  the  miscellaneous  expenditure 
may  not  be  judicious.  That  there  has  been  a  very  fjen- 
era!  rise  in  the  standard  of  comfort  throughout  tk 
world  during  the  past  century  there  can  be  no  doulit. 
It  may  be  that  fhe  total  of  human  toil  has  not  been 
lightened;  but  the  total  of  human  production  has  been 
greatly  increased  and  fliis  increase  has  gone  partly,  al- 
though not  wholly,  into  increased  consumption  by  the 
mass  of  the  people.  This  increased  miscellaneity  »f 
consumption  may  be  held  to  the  due  to  change  in  the 
plane  of  economic  life. 

For  example,  during  the  period  since  the  revohition 
in  Japan,  that  country  has  become  gradually  commer- 
cialized, and  the  mercantile  class  has  been  adopting 
American  and  Western  European  modes  of  transacting 
business.     They  have  been  doing  business  on  a  larger 
scale  and  have  been  incurring  increased  responsibilities. 
The  simplicity  and  frugality  of  Japanese  life  has  thus 
become  no  longer  possible  for  the  more  important  mer- 
chants.    Although,  so  far  as  practicable    they  retM 
the  older  mode  of  life  for  their  families,  they  find  the; 
cannot  do  so  for  themselves.     They  find  that  the  cus- 
tomary  Japanese  diet  does  not  provide  them  with  the 
additional  amount  of  nervous  energy  which  they  require 
for   larger    affairs.     They,    therefore,    adopt   a   « 
promise-living  partly  in  the  Japanese  and  parti>  « 


CONSUMPTION    FOR    PERSONAL    USE         309 

the  American  or  European  niuniier  in  resiject  to  food, 
and  increasing  their  miscellaneous  expenditure  even  in 
ways  distinctively  Japanese. 

285.  Proportions  of  the  constituents  of  consumption. 
-ilany  inquiries  have  been  made  by  means  of  the  col- 
lection of  family  budgets  into  the  proportions  of  ex- 
penditure upon  the  various  kinds  of  consumption.  The 
general  conclusion  has  been  arrived  at,  that  in  the  case 
of  the  lowest  incomes,  the  actual  cost  of  subsistence  ac- 
counts for  the  larger  part  of  the  expenditure,  amount- 
ing approximately  to  60  per  cent  of  the  total.  The 
proportionate  cost  of  clothing  is  very  small  in  the  lower 
incomes,  increases  in  the  intermediate  incomes  and  de- 
clines again  in  the  higher  incomes.  The  proportionate 
cost  of  house  rent,  fuel  and  light  is  ajiproximately  the 
same  whatever  the  income,  although  in  cases  of  very 
liigii  incomes  it  is  somewhat  less  than  in  the  case  of 
intermediate  incomes.  In  the  very  lowest  incomes  it  is 
often  greater  in  proportion  than  in  the  intermediate  in- 
comes. iMiscellaneous  expenditure  increases  steadily 
with  the  income;  in  the  case  of  very  high  incomes  it 
forms  a  large  proportion  of  the  total  expenditure. 

286.  The  cost  of  Kwn^.— V^ariations  in  the  cost  of 
living  may  arise  in  one  or  the  other  of  two  ways;  either 
the  consumption  has  varied  in  quantity  or  in  character, 
or,  the  quantity  and  character  remaining  unaltered, 
prices  of  the  consumed  commodities  have  changed.  The 
standard  may  be  reduced  or  raised  without  altering  the 
cost  of  living  if,  when  prices  rise,  the  comfort  is  reduced, 
wif,  when  prices  fall,  the  comfort  is  increased,  provided 
the  rise  and  fall  of  prices  apply  to  the  commodities 
«hieh  comprise  the  consumption.  A  farmer,  for  ex- 
ample, who  has  reaped  an  inferior  harvest  of  wheat  or 
rje.  will  sell  what  he  has  of  tliese  grains  and  buy  inferior 


'     1 


t 


SIO 


ECONOMICS 


grains  or  potatoes.  His  cost  of  living  will  be  dimin- 
ished, if  he  previously  consumed  wheat  or  rye;  luit  liis 
standard  of  comfort  will  have  declined  because  he  has 
been  driven  to  consume  less  nutritious  food.  On  the 
other  hand,  an  artisan  accustomed  to  the  use  of  potatDcs 
may  find  if  there  is  an  unusually  abundant  wheat  nr 
rye  harvest  that  he  can  raise  his  standard  of  conifort 
and  can  consume  more  nutritious  food  than  he  had  \mn 
accustomed  to  consume  because  the  fall  in  the  price  ()f 
these  grains  brought  them  within  his  reach  without  in- 
creasing his  expenses  or  cost  of  living. 

When,  owing  to  some  wide  general  cause,  the  prices 
of  the  commodities  customarily  consumed  by  the  mass 
of  the  popuh  ti  m  advance,  the  cost  of  living  increases 
and  at  the  s-.  e  time  owing  to  the  difficulty  of  adjust- 
ipg  incomes  to  the  increased  expenses  necessitated  by 
the  advance  of  price,  consumption  diminishes  and  the 
standard  of  comfort  declines. 

This  condition  was  experienced  in  "the  dear  years 
(1802  and  1803)  when  the  necessaries  of  life  rose  m 
price  and  when  people  normAlly  above  the  pitich  of 
want  found  that  they  had  to  stint  themselves  of  things 
that  they  were  accustomed  to  regard  as  necessaries.  Salt, 
for  example,  rose  to  so  high  a  price  ths:  even. well-to-do 
people  had  to  forego  the  use  of  it. 

During  a  period  of  rising  prices,  possessors  of  stocks 
of  commodities  gain,  and  their  standard  of  comfort 
tends  to  rise  because  with  their  stocks  they  can  purchase 
more  of  certain  commodities  than  they  could  formerly 
purchase.  In  the  verv  rare  case  of  a  general  rise  ot 
prices  of  commodities,  holders  of  stocks  of  commodities 
could  employ  more  labor  or  they  could  hoard  the  funds 
derived  from  the  sale  of  their  stocks. 

When  prices  of  the  necessaries  of  life  fall,  the  stand- 


CONSUJIPTIOX  FOR  PKRSOXAL  USE   311 

ard  of  comfort  of  the  mass  of  the  people  rises,  provided 
thtir  incomes  remain  the  same.  This  seldom  occurs, 
for  although  the  wages  of  labor  do  tend  to  rise  and 
fall  because  the  prices  of  necessaries  rise  and  fall,  the 
movements  are  rarely  coincident.  In  the  interval  the 
wage  earner  gains  when  prices  are  falling  and  loses 
when  prices  are  rising.  The  sharp  fall  in  the  price  of 
wheat  which  occurred  after  the  battlp  of  Waterloo  had 
dosed  the  epoch  of  the  Napoleonic  wars,  ruined  the 
farmers,  but  benefited  the  people.  Although  wages  of 
agricultural  laborers  soon  fell,  the  wages  of  artisans 
were  probably  not  seriously  affected,  at  all  events,  for 
some  time  afterward. 

287.  Changes  in  1850  and  1875.— The  rise  in  prices 
which  occurred  in  the  fifties  of  the  nineteenth  century 
affected  chiefly  those  commodities  which  entered  into 
sliipbuilding  and  railway  construction,  as  also  did  the 
rise  in  prices  which  occurred  in  the  early  seventies. 
Rents  advanced  in  the  towns  owing  to  the  migration  to 
them  from  the  rural  districts  on  account  of  industrial 
activity  and  agricultural  depression.  Wages  in  the 
to«  -  were  high  and  the  standard  of  comfort  of  the 
mass  of  the  population  was  raised.  In  some  industries 
(in  mining,  for  example),  wages  rose  to  a  very  high 
point  and  the  mode  of  life  of  miners  was  for  a  time 
entirely  altered. 

About  1873  industry  declined  and  prices  of  the  stable 
commodities  fell,  so  also  did  wages  and  the  former  stand- 
ard of  comfort  was,  in  effect,  resumed;  and  as  the  de- 
pression deepened,  although  prices  were  low,  the  stand- 
ard of  comfort  was  low  also,  because  wages  had  fallen. 
It  was  not  until  1886  that  prices  began  to  advance. 
The  labor  market  improved,  wages  rose  and  an  advance 
I"  the  standard  of  comfort  followed.     Low  prices  thus 


312 


ECONOMICS 


o  not  necessarily  involve  improved  comfort  nor  do 
liigh  prices  necessarily  involve  diminished  comfort. 

288.  Prices  in  1890-1009.— It  is  obvious  that  not  all 
commodities  enter  into  normal  domestic  consumption,  so 
that  a  curve  showing  the  increases  in  prices  of  the  great 
staples  would  not  necessarily  throw  light  upon  the  cost 
of  living.  It  is  possible,  however,  to  take  certain  se- 
lected commodities  which  enter  largely  into  domestic 
consumption  and  to  inquire  what  the  course  of  prices 
of  these  commodities  has  been  over  a  certain  period. 
By  way  of  illustration,  we  maytake  the  prices  of  grains 
(wheat,  barley,  corn,  etc.),  of  animals  (beef,  l)aciiii, 
mutton,  fowls,  etc.),  of  dairy  produce  (milk,  butter, 
cheese,  etc.),  of  fish,  of  groceries  (tea,  coffee,  sugar. 
etc.),  of  textiles  (cotton,  wool,  etc.),  and  of  animal 
products  (leather,  etc.),  during  the  period  from  1890 
until  1909;  that  is  to  say,  during  a  period  of  twenty 
years.  The  method  of  calculation  by  means  of  index 
numbers  has  already  been  described.  The  following 
index  numbers  reveal  the  fluctuation  of  the  commodities 
in  question,  the  average  price  of  each  group  of  commod- 
ities for  the  whole  period  being  regarded  as  equal  to 
100,  and  alternate  years  only  being  taken. 


1890 

1892 

1894 

1896 

1898 

1900 

1902 

1904 

1906 

1908 

1909 

Grains. . . . 

116 

106 

94 

86 

100 

100 

116 

116 

118 

148 

150 

Animals . . 

110 

110 

100 

83 

97 

104 

122 

112 

130 

129 

149 

Dairy 

produce. 

104 

106 

105 

90 

93 

109 

108 

107 

ISJO 

137 

\ii 

Fish 

102 

91 

96 

103 

100 

107 

112 

119 

121 

12^ 

134 

Groceries. 

120 

104 

95 

87 

95 

93 

98 

101 

103 

110 

lOD 

Textiles. . . 

111 

102 

97 

97 

95 

110 

102 

110 

124 

111 

109 

.\  n  i  m  a  1 

products 

101 

100 

00 

94 

104 

114 

118 

114 

128 

121 

m 

289.  Important    increases. — These    figures    suggest 
that  the  principal  increase  in  price  during  the  period, 


CONSUMPTION    FOU    PEHSOXAL    USE        313 

although  tlie  increase  is  by  no  means  continuous,  has 
taken  place  in  tlie  products  of  the  extractive  industries- 
agriculture  and  cattle  raising.    The  increase  in  the  prices 
«!■  grains  may  be  attributed  to  the  relatively  inferior  har- 
vests of  the  later  years  (1908  and  1909) ;  prior  to  these 
years  the  price  had  not  advanced  materially.     The  in- 
crease in  the  price  of  beef  and  other  meats  may  be  at- 
tributed to  the  diminution  of  ranching  and  to  the  high 
Fice  of  fodder,  which  rendered  the  feeding  of  stall-fed 
cattle  unprofitable.     For  the  same  reason,  dairy  and 
animal  products  exhibit  an  increase.    The  price  of  fish 
l.a.  probably  advanced  owing  to  the  increased  consump- 
!">n,  due  to  the  substitution  of  fish  for  beef.    Textiles 
>vl..eh  are  the  product  of  manufacturing  industry,  al- 
liough  primarily  also  the  result  of  extraction,  have 
lallen  and  so  also  have  groceries,  the  latter  being  lareelv 
imported  mto  the  United  States  and  Canada 

The  advance  in  price  of  grains  and  of  animals  and 
animal  products  appears  thus  to  indicate  an  advance  in 
tlie  cost  of  living  between  1890  and  1909,  with  inter- 
mediate fluctuations  of  approximately  30  per  cent.    But 
these  statistics  do  not  afford  the  whole  of  the  data  con- 
wted  with  the  cost  of  living.    In  addition  to  food  and 
dothmg,  the  relative  costs  of  which  the  index  numbers 
ndjate.  there  are  shelter  and  fuel  as  important  items 
f  domestic  expenditure.    In  the  urban  centres,  owing 
the  increased  population  of  these,  rents  have  undoubt 
e%  risen,  how  much  it  is  very  difficult  to  determine. 
J^rom  various  inquiries  it  would  appear  that  in  general 

1    t.f '7?u   ^*?  *°  '""^^  Pl^''^  '■"  ^901  ^nd  that  it 
btmued  throughout  the  whole  of  the  remainder  of 

tee"^  T[T-    ''''  ''"'''''  °''  '-*  wears  to 
we  been  checked  in  1911  or  1912.  owing  to  the  in- 

5^«se  ot  building.    Advances  have,  however,  varied  so 


n 


314 


ECONOMICS 


widely  in  different  centres  that  it  is  impossible  to  giv( 
any  figures  which  would  fairly  represent  the  geneial  in- 
crease. 

The  costs  of  house  building  have  increased  materiallv 
owing  to  the  advance  of  the  wages  of  skilled  labor  and 
to  the  great  advance  in  the  price  of  hunber  (another  ex- 
tractive industry).  The  index  number  of  lumber  was, 
in  1892,  104:  in  1897,  164,  and  in  1909,  154.  The 
prices  of  all  fuel  have,  on  the  whole,  varied  slightly 
from  the  average,  but  furnace  coal  exhibited  violent 
fluctuations  during  the  period,  as  follows: 
1890  1892  1894  1896  1808  1900  1903  1004  1906  1908  lOnil 
122     106     6?      110     98      136     158     97      157     100     IIR 

Coal  oil  (U.  S.  standard)  fell  from  111  in  1892  lo  69 
in  1908  and  1909. 

The  cost  of  the  necessaries  of  life  appear  thus  to  have 
advanced  materially  during  the  past  twenty  years;  but 
they  have  not  advanced  uniformly.  So  far  as  may  lie 
gathered  from  the  scale  of  general  prices— that  is,  tiie 
scale  of  the  bulk  of  the  commodities  which  enter  into 
consumption,  not  merely  of  a  domestic  but  also  of  a 
productive  character— the  present  period  compared  with 
the  past  periods  is,  however,  not  a  period  of  high  prices; 
but  from  about  1896  it  has  been  a  period  of  rising  prices. 
Even  now,  notwithstanding  the  advance  in  price  whicii 
has  taken  place,  the  scale  of  prices  is  little  higher  than 
it  was  in  1886  when  prices  reached  the  lowest  pniiit 
which,  until  that  time,  they  had  reached  in  the  present 
century.    They  were  destined  to  reach  a  still  lower  point 

in  1896. 

290.  Conclusion  to  he  draww.— The  general  conclu- 
sion may  be  hazarded  that  the  sharpness  of  the  advance 
since  then,  very  much  sharper  than  the  decline  from  the 


CONSUMPTION'    FOR    PERSONAL    IISK        315 

high  prices  of  1874,  has  disturhe.l  the  economic  enuili- 
bruim  and  that  this  sharjj.iess  ratlier  than  the  magnitude 
of  the  rise  of  prices  lias  also  disturbed  the  minds  of  tlie 
people.     It  is  important  to  notice  that  in  respect  to 
agricultural  products,  in  which  the  chief  advance  has 
taken  place,  there  can  be  no  question  of  the  influence  of 
trusts,  while  in  most  cases  where  the  influence  of  trusts 
IS  supposed  to  be  considerable,  for  example,  in  coal  and 
in  coal  oil,  prices  have  either  not  been  materially  altered 
or  have  fallen.'     A  possible  exception  is  the  case  of  beef 
Kven,  however,  if  the  "beef  tnisf  has  manipulated  the 
market  in  such  a  way  as  to  control  the  price,  which  is 
open  to  doubt,  the  method  of  meeting  this  condition  by 
a  boycott,  which  api)ears  to  have  been  attempted,  is  by 
no  means  likely  to  attain  the  desired  result.    The  higher 
the  price  of  beef  becomes  the  more  inducement  there  is 
to  produce  it,  and  any  artificial  reduction  of  the  price  bv 
means  of  a  boycott,  if  such  a  measure  were  successful, 
would  simply  act  as  a  deterrent  and  would  tend  to  pre- 
vent capital  and  labor  from  embarking  in  the  industry 
of  cattle  raising. 

It  remains  to  be  noticed  that  while  some  portion  of  the 
increased  cost  of  living  is  undoubtedly  due  to  the  in- 
crease in  the  prices  of  some  of  the  necessaries  of  life,  the 
other  element  in  an  increase  of  the  cost  of  living,  namely 
the  increase  in  the  standard  of  comfort,  has  also  to  be 
taken  into  account.  This  is  a  matter  difficult  to 
investigate  from  a  statistical  point  of  view.  There  ap- 
pears to  be  among  dealers  an  impression  that  the  price 
of  clothes  has  not  risen,  but  that  the  mass  of  the  people 
wear  better  and  more  expensive  clothes  than  they  used  to 
wear;  and  there  is  also  the  impression  that  their  miscel- 


316 


ECONOMICS 


laneous  expenditure  has  increased  considerably.  Wt 
may,  therefore,  arrive  at  the  provisional  conclusion  that 
at  least  some  portion  of  the  increase  in  the  cost  of  living 
is  due  to  the  fact  that  the  mass  of  the  people  demand 
and  enjoy  living  at  a  higher  standard  of  comfort  than 
they  enjoyed  or  demanded  a  few  years  ago.  If  this 
conclusion  is  correct,  it  accounts  for  at  least  some  portitin 
of  the  advance  of  prices  through  increased  demand  due 
to  the  increase  in  the  standard  of  comfort. 


CHAPTER   III 

PRODUCTIVE   CONSUMPTION 

291.  (Consumption  of  Tmturalre»ource».~^^atura\  re 
sources  may  be  divided  into  three  kinds:        ^^''*"™' '^'=- 
ttrst  those  resources  which  when  once  utilized  are 

supply  ,n  effect  conl.nuous,  although  the  quantity  nmv 
not  be  unhm.ted-of  this  order  is  the  power  wlS 
may  be  denved  from  falling  ..ter  and  the  resour  c 

?    Zlu^'^P^y  ^"•'  "'''"  *'"'"  P°«"  purposes 
Second,  those  resources  which  are  simSarly  "to- 
matically  renewed  but  in  a  manner  which  makes  the 

r/j>d,  those  resources  which  are  also  automaticallv 
renewed,  but  which  are  variable  and  uncertS  2 
supply  ,n  any  particular  area,  as  rain. 

Fourth,  those  resources,  the  supply  of  which  mav 
be  made  continuous,  partly  through  unconrolkble 
and  partly  through  controllable  natSral  force  a  the 
breed,ng  of  fish  in  the  fisheries  and  the  preplrat  on 
of  t^^e  sod  and  cultivation  of  plants  as  in  a^riXe 
.  Fifth,  those  resources  which  are  sometimes  replen- 
ished by  natural  forces,  but  which  may  be  repleSed 
by  the  appropriate  application  of  laLr  aS  caS 

rtt^:::r'^'°"^^"*-*-*--'^'-«pS^ 


3V, 


'  period  - 


!and 


SIS 


ECONOMICS 


the  supply  of  which,  however  relatively  ample  it  may 
be,  is  nevertheless  susceptible  of  exhaustion,  as  all 
minerals. 

These  resources  in  the  aggregate  constitute  the  ma- 
terial part  of  the  potentially  productive  capital  of  a  na- 
tion, and  each  nation  possesses  all  of  them  in  a  greater  (ir 
less  degree.  Some  nations  possess,  as  well,  other  natural 
resources,  the  exploitation  of  which  in  one  way  or  an- 
other contributes  to  the  natural  income.  The  chief  nat- 
ural resource  of  Switzerland,  for  example,  is  the  mouii- 
tuin  scenery,  which  attracts  tourists  from  other  countries. 
The  Grand  Canyon  of  Colorado  is  a  natural  resourci'  of 
u  similar  kind,  as  are  the  hot  lakes  and  pink  terraces  »( 
New  Zealand.  Mount  Vesuvius  may  be  considered  as  a 
natural  resource  of  the  same  order. 

292.  Contcrvation  of  natural  resources.  —  Anxitty 
about  the  conservation  of  the  natural  resources  of  a 
country  is  chiefly  concerned  with  the  economical  expli)i- 
tation  of  these  resources,  which  are  non-renewable,  or 
the  supply  of  which  is  renewable  only  after  a  more  or 
less  extended  period  of  time.  It  is,  however,  also  con- 
cerned with  the  economical  exploitation  of  those  natural 
resources  which  afford  several  different  kinds  of  utili- 
ties, in  order  that  care  may  be  taken  that  they  are  not 
exclusively  utilized  for  some  of  these  to  the  exchision 
of  others.  For  example,  the  preservation  of  the  natural 
beauty  of  waterfalls,  like  the  Niagara  Falls,  is  held 
to  be  as  desirable  from  the  point  of  view  of  utility  as 
the  exploitation  of  the  falls  for  the  purpose  of  obtain- 
ing power,  and  thus  a  limit  has  been  placed  by  interna- 
tional agreement  upon  the  amount  of  water  which  may 
be  drawn  from  the  river  above  the  tnWs  for  industrial 
purposes. 

Those  natural  resources  which  have  mainly  attracted 


PHODtJCTIVi:    (ONSIMPTiov  3,„ 

the  attention  „f  consen  atmn  c-onnnk,!,,,,.,  an.l  associa- 
W  are  n.a.nly  tl.  f„r.t.  t,.e  fi.l.nes  aid'ti^X 

L/n.ted  States,  toward  -.,.:  nul  of  the  eii/hteenth  ccn 

tury.  the  natural  resources  ,c.n.ed  limitle.sf  al^    .^Tst 

xtended,n  every  .lireetion.  an.l  only  the  s  emlernes^ 

the  popuat,on.  which  affor.Ic^l  hnt  a  rclativel     smi 

exploitation.  Mere  abundance  in.h.ced  habits  of  ,.v- 
-vaKanee  so  far  as  material  was  concerned.  Th  rclil 
t.vely  high  cost  of  labor  led  to  the  invention  o  ]«  , " 
avng  devees.  but  there  did  not  appear  to  be  anv  real 
for  saving  „,aterial.  Time  was  invaluable,  but  e  Z 
danee  of  material  was  even  embarrassing  '  V  f,  S" 
for  example,  were  diseomn.odities  whicj  had  to  rt' 

zz:r.::^i,-L':' '-^''-'■'- -■  ^^^^^^^ 

Conservation  commissions  have  advocated  the  reten 
on  of  the  balance  of  the  national  resourc  by  t,  :  ^ 
taml  government  a.ul  the  careful  granting  of  "the  e  f^ 
exploitation  un.ler  a  regulative  system;  others  have  a 
vocated  a  campaign  of  education  of  the  Sc  w  th  a 
v.ew  to  the  adoption  of  increasingly  strii^    tgit iV; 

ouners  of  coal  fields  in  order  to  induce  them  to  consider 

rivTr;- "":;.  ^""^  ^*'"  "*"^^^  >--  p-p-  - 

Vn  J     .  "'  *''"  '^'**'"«  '^on-litions  of  exploitation 

^o  doubt  some  or  all  of  these  measures  would,  if    .; 

>_^end,    but  for  our  present  purposes  it  is  necessary 

State,  m  1900.  U  an  example  o(  the  l,.°l.-r     ^'"'"""'"-  "^P-n.zed  in  the  United 


320 


ECONOMICS 


to  inquire  why  it  is  that  the  conditions  are  as  they  are, 
as  an  indispensable  preliminary  to  the  serious  discussion 
of  means  for  their  alteration. 

298.  Exploitation  of  natural  resources.— In  new 
countries,  like  the  United  States  and  Canada,  a  rapidity 
of  production  greater  than  that  of  older  countries  is 
essential  for  the  national  existence.  The  reasons  for  this 
condition  may  be  put  as/oUows:  in  European  countries, 
which  may  be  taken  as  types  of  long-settled  communi- 
ties, a  large  part,  indeed  by  far  the  larger  part  of  the 
social  fixed  capital  (that  is,  capital  invested  in  public 
buildings,  roads  and  bridges)  is  the  product  of  the  lalwr 
of  previous  generations;  the  capital  invested  in  them  has 
long  been  subjected  to  the  process  of  amortization,  and 
the  sole  social  burden  is  the  maintenance  of  the  fabrics. 

In  a  new  country  there  is,  to  begin  with,  no  fixed 

capital  and  no  organization  of  life.    The  early  settler 

finds  himself  in  a  more  or  less  constant  struggle  with 

nature.    If  he  brings  into  the  new  country  the  desires 

of  the  old  he  may  have  to  subject  himself  to  enormous 

inconvenience  to  satisfy  wants  which,  in  organized  life. 

are  among  the  most  common  and  most  easily  satisfied. 

While  driving  on  the  Northern  Canadian  prairies  m 

1904  the  writer  encountered  on  the  trail,  about  150  miles 

from  the  nearest  railway  station,  a  boy  driving  an  empty 

ox-wagon.    The  boy  was  50  miles  from  his  home  and 

the  same  distance  from  the  destination.    The  latter  was 

a  small  town  in  which  he  was  going  to  buy  a  few  pounds 

of  sugar,  wanted  for  the  use  of  the  household  to  whieli 

he  belonged.     At  the  usual  rate  of  progress  of  an  ox- 

20  miles  per  day— the  boy  expected  to  accomplish  Ins 

journey  of  200  miles  in  a  fortnight,  leaving  four  days 

for  rest.    A  farmer's  wife  at  an  even  greater  distance 

from  a  town  or  a  railway  station  complained  at  the 


PRODUCTIVE    COXSUMPTION  3^1 

z  L"  ™n:t.7'"  "■■' "" ""-"  "■"-  - — 

The  absence  of  organized  life  is,  of  course,  felt  more 
or  less  acutely  in  p-^portion  as  the  settler  has  been 
accustomed  to  it,  wearied  of  it,  unacquainted  with  it  or 
indifferent  to  it.  Alost  of  the  European  settlers  in  Amer- 
ica, at  all  epochs,  have  been  accustomed  to  some  kind 
of  organized  life,  while  many  of  them  have  migrated 
from  cities.  Demand  for  the  conveniences  of  life  is 
thus  long  antecedent  to  the  full  supply  of  them 

At  the  beginning  of  the  settlement  of  a  new  country 
It  IS  indispensable  that  the  most  necessary  of  the  forms 
of  socially  usable  capital  should  be  obtained  as  soon  as 
possible.    Therefore,  compared  with  those  to  which  the 
settlers  were  formerly  accustomed,  they  must  be  crude 
Ihe  easiest  and  quickest  method  is  the  best.    The  only 
«)nsideration  is  satisfaction  of  the  immediate  want.    The 
first  house  is  a  "shack"  of  logs,  trees  being  remorselessly 
felled  for  the  purpose.    If  the  only  available  tree  near 
the  site  IS  walnut  or  mahogany  it  is  used  without  con- 
sideration of  its  exchange  value  under  other  conditions. 
Thus  in  the  early  settlement  of  parts  of  Ontario,  walnut 
was  used  for  ordinary  building  purposes  and  even  some- 
toes  for  fences.     In  the  construction  of  the  Cuban 
Hallway  at  least  one  bridge  was  built  of  mahogany  be- 
cause that  was  the  only  available  wood  in  the  neighbor- 
Hood  of  the  site. 

As  time  passes  and  the  population  increases,  social  and 
private  capital  grow  together.  The  generation  of  early 
settlers  passes  away  but  leaves  behind  it  for  the  inheri- 
tance of  the  next  generation  an  unexhausted  balance  of 
"tihties.  The  new  generation  utilizes  this  balance  ex- 
hausts some  of  it  and  adds  to  it  and  so  on.  The  prospect 
ot  extensive  natural  resources  to  which  access  is  eiven 

c— I— 21  " 


322  ECONOMICS 

more  or  less  freely  (as  by  homestead  laws  and  the  like) 
induces  immigration,  and  the  new  immigrants  pass 
through  the  same  phases  as  the  earlier  settlers. 

Peasants  from  Galicia  and  Bukovina  in  Eastern  Aus- 
tria, for  example,  have  left  the  villages  in  which  tl-.y 
lived  in  comparative  comfort— their  houses  being  more 
or  less  well  built— to  live  for  a  time  in  Canada  in  dug- 
outs.* So  soon  as  they  could  accumulate  sufficient  sav- 
ings, or  so  soon  as  they  could  establish  credit  sufficiently 
to  borrow  the  necessary  amount,  they  purchased  timber 
and  built  houses  for  themselves,  or  they  hired  horses,  cut 
down  the  timber  on  the  government  lands  and  drove  it 
to  their  settlements  for  building  purposes. 

294.  Settlement  in  a  new  country.— U  settlers  have 
to  rely  entirely  up~n  their  own  exertion,  apart  from  any 
possible  aid  frOi..  external  sources,  their  progress  to- 
wards comfortable  and  stable  settlement,  even  though 
they  are  industrious,  may  be  slow.  It  may  be  greatly 
increased  in  rapidity,  although  it  may  be  rendered  less 
stable,  by  borrowing  capital  with  which  they  purchase  at 
once  the  means  of  establishing  themselves  and  of  en- 
gaging immediately  in  agricultural  production  instead 
of  providing  makeshifts. 

It  is  entirely  possible  for  a  farmer  who  is  accustomed 
to  hardship  and  who  has  the  necessary  skill  of  various 
kinds  to  establish  himself  without  any  external  aid  and 
without  any  capital  to  begin  with;  but  the  process  re- 
quires a  very  vigorous  constitution  and  frequently  has 
its  victims.  Such  a  farmer  would  live  on  natural  fruits 
and  roots  while  he  is  finding  the  materials  for  and  mak- 
ing makeshift  agricultural  implements.  Exchange  oi 
wild  fruits  and  herbs  gathered  by  him  would  procure 

over  with  clay. 


rKODUCTIM-:    (•OXSIAII-TIOX  323 

a  nfan  would  to  .^^^^^^^         "'  ''''  *-"^'-  f-  --■!. 

been  adopted  by  so^LfllSlr'?"  '''^  "'""^  ''"^ 
who  have  settLTn  the  r   ^       x"°P'""P'=''^«"^*' 

group  found  lar^    uppL  ofste"   ^T^^'f"     «'"^ 
were  able  to  sell  fnrT  "^^i^^eca  Root  which  they 

knowledge  orhe^wt  tTic;"^  I^T^"^'     ^"^'"^ 
their  capital  '      '*  P"^"''^*^'  «■  Part  of 

Tl»y  thu,  embark  ih.  „  J    „,  E '""' '«*'.'  '"'"'"trf. 
1  pemclly  K„„„„  „j,,„„^  ^,..,^^^  in,l„r,„c„f  „f 


aji 


324 


ECONOMICS 


Thus  borrowing,  public  and  private,  involves  increas- 
ing annual  interest  payments.  The  community  must, 
therefore,  tax  itself  to  meet  the  public  charges,  and  it 
must  exercise  its  individual  industry  actively  in  order 
to  meet  at  once  its  public  and  its  private  obligations. 
Repudiation  of  interest  charges  would  lead  to  an  im- 
mediate check  in  the  inflow  of  capital,  as  it  always  has 
done  in  such  cases,  and  this  check  would  affect  not  only 
those  municipalities  or  states  which  had  repudiated  b\it 
all  others  because  a  new  element  of  risk  would  be  in- 
troduced and  would  have  to  be  compensated  for. 

The  relatively  high  rate  of  interest  which  obtains  in 
new  countries  and  especially  in  the  outlying  parts  of 
these  is  due  partly  to  the  difficulty  of  inducing  the  lend- 
ing of  capital  in  remote  places  because  of  the  great  pro- 
portionate risk  under  any  circumstances,  and  partly  be- 
cause of  the  greater  cost  which  compulsory  recovery 
involves  in  isolated  as  compared  with  settled  regions. 

If  the  argument  has  been  followed,  it  will  now  have 
become  apparent  why  the  United  States  and  Canada 
must  be  occupied  by  people  who  work  hard  for  an  im- 
mediate return.  The  payment  of  interest  cannot  be 
postponed  without  serious,  ulterior  economic  effects. 
The  accumulated  capital  of  the  United  States  is  not  yet 
sufficient  to  enable  it  to  avoid  borrowing  abroad  without 
greatly  restricting  the  rapidity  of  its  development,  the 
rapidity  of  its  development  being  due  in  a  great  measure 
to  the  capital  which  it  has  borrowed  from  abroad. 

295.  Effect  of  leffidntion  upon  tJie  borro-cinf!;  of 
capital. — A  sudden  restriction  of  its  industrial  enterprise 
through  legislative  interference  with  the  object  of  im- 
posing a  check  upon  the  exploitation  of  the  natural  re- 
sources, if  such  legislation  were  effective,  would  have  th? 
same  result  as  a  restriction  of  the  supply  of  capital 


PRODUCTni,    VOSSVMPTIOS 


'•rough  a  rise  in  the  rate  of  interest  In^  . 
'ation,  by  diminishing  the  imluZ  w"*'  '""''  ''^*'"''- 
.-nto  such  enterprises  H,.;;r"  "  '"""'*'"  *"  *-'" 
miniediate  returns    wo.  M  .      '"'''  ""P'««'  "Pon 

capital  fron^entlri  it    "       "  '''''*  "'  '''''''"'^ 
try  altogether.       ^  *  *'""  ""*"'-^  »«•  ^om  the  coun 

extreme  case)  with  "rfoT"' '"^"^  ^*"  ^'"^"^  «" 
eigners  were  to  be  ad„ft«  the.  '"^"^*'""'*''  "^  f"- 
purchased  at  reduced  pSstn^t-"'"""'''  """''^  ^ 
would,  however,  also  be  tme  that  r'  fP^™^"*'"-^-  It 
q»ent  supplies  of  foreiln^L  '  ""'-''  '^""''1  ''"^se- 
capital  would  tend  tlTe  inXI  ^  "",1^'^  '"*  ""*'- 
.lin.-nished.  security  of  ii'S Te^ts  "f  '"T  °^  '""^ 
causes  the  supply  of  caDitn^.u^".^'''"'"  ""^"^^  t«'o 
price  of  it  enLnLd      ^  ""'"^  ^'  '^™'"'''''«d  and  the 

ea^tliSt:;:^;:^;:';^^^  States  in  the 

obligations  by  some    3  t''Pr.^^''''*""°<' '"*«'•«* 

tWn  upon  the  cr"ditTfl"rT''*'"'  '^°"''*''  ^-^ 
result  was  the  sale  of  n^  '""n'opal.t.es  in  general.    The 

and  other  invLSir :tnro7'"^^  ''  ^--" 
the  consequent  advance  0//^,     T"'^  abroad  and 

nmnicipal  borrowhigs  '"*'  °^  '"^^'•^^t  f^r  all 

evenVXe4";!rtt':b  "f '"'  ^-'"^'^  '^  -  an 
-Pid  developm^nt^"^  rjf;;^^^^^  The 

«as  due  largely  to  tbT       "  ^^"  ^^"»  ""d  1912, 

'oan  of  externaf  capital  eST"*  ""'  *''^  ^^-P"-^' 
°rder  to  pay  the  fnter^f  ^  T  ^^'"''  ^^''t^'n-  In 
production  L  aV^SaTr'It  ^^  ""''"''  ^'"^  -«- 
the  stream  may  notZtllT'^  ''  "^■^•^^^-^  ^  ^""^ 


326 


ECONOMICS 


the  social  point  of  view  it  is  extremely  important  that  the 
life  of  the  community  should  be  continued  at  as  high 
a  level  as  possible.  The  human  resources  of  a  nation 
are,  after  all,  its  most  important  resources.  Attempts 
have  often  been  made  to  form  estimates  of  the  value  of 
men  considered  in  terms  of  capital.  Every  mature  per- 
son has  cost  society  a  certain  amount.  He  has  enjoyed 
the  protection  and  the  services  of  the  State.  He  has 
been  educated  largely  or  wholly  at  the  cost  of  the  State. 
He  has  been  the  cause  of  expenditure  to  his  parents  and 
to  the  public,  during  the  whole  period  of  his  infancy  and 
adolescence,  and  when  he  reaches  maturity  he  may  fairly 
be  said  to  be  a  debtor  for  this  amount,  with  interest  and 
compound  interest,  if  an  exact  calculation  be  made.  It 
is,  therefore,  highly  important  to  the  community  tliat 
each  person  who  survives  to  maturity  should  survive 
long  enough  to  enable  him  to  repay  this  substantial  debt 
by  means  of  production  of  one  sort  or  another.  If  his 
energy  is  worn  out  prematurely  by  too  exhausting  labor, 
or  if  for  any  reason  he  succumbs  before  the  debt  is  paid, 
the  community  loses. 

297.  Reactions  of  congumption  upon  production. — 
Consumption  reacts  upon  production  from  the  movement 
of  the  population,  from  changes  in  the  standard  of 
comfort  and  from  other  causes,  and  results  either  in  di- 
version or  in  net  increase  or  diminution  of  demand.  For 
instance,  increase  in  the  demand  for  cotton,  due  to  the 
requirements  of  the  Russian  and  Japanese  soldiers  in 
Manchuria  (quilted  cotton  being  the  customary  winter 
clothing  of  the  region  in  which  the  campaign  was 
fought),  led  to  an  increased  production  of  both  cotton 
and  wool,  and  the  high  price  of  woolen  yarns  led  to 
change  in  the  production  of  mixtures  of  woolens  and 
cottons,  more  cotton  yarn  being  employed  to  replace 


PnODUCTIVE    COVSUMPTIOX 


387 

diminished  consumption  i^^th     ^     u    "  '^^"'*'^'>  ^t-'t^s 
-d  reacted  upon  thf;X«t:atT^^^^^^    '"  ""'^^ 

T^— f---=r"-"- 
;nd  then  an  increaselTe  ^roduX:  T  •'"'*  "'  ^' 

tion  win  diS^Ve^c:^:  t^-thodofproLr 

A  change  in  consumption^  .l  "o  ^^'^"r'"*"'-^-- 
nence  a  large  number  of  new  cLmn,,  V  ^  'f  °  P"""™'" 
practical  disappearance  To  heT  e  "rf  "T  *''^ 
phenomenon  have  been  indipJ  J  ^Examples  of  this 
of  change  of  fashion  upon  rr^s"  """'"«  '"'  ^^^^ 

di-nishes^n  amoun  XeTs  ''n'™  '"'"•^''-''  - 
consumption  onhTlToTT?^^,  '"  '"'^''^^^^  '" 
tion  belongs.  When  thl ,  "^  ''""'"*  '"  'l"^^" 
-  wages,^the  ^nd'wn  "  he"  T^ '"  ""*'  '"*'-* 
*  receives  that  advan^  tot  m"'  "  '""^  '^"^^^ 
"eases  the  total  of  hilex^"?.      'u  ^  customarily  in- 

-Ptionfromone'cSroSrt;^'::^'!^^  d'  ^"^ 
I  whose  rents  havp  «.«.„  .  anotner.    A  landowner 

«new  one.  and  a  capitalTf  T'^^J  ''^  """''^  -  ^""'^ 

joyment  of  allZ^T         ^'''^'  '"''"^'^  '"  th«  en- 

iarger  mcome  m  consequence  of  a  rise  in 


y? 


328 


ECONOMICS 


the  rate  of  interest  may  discard  his  carriage  and  horses 
and  begin  to  use  an  automobile. 

When  wages  advance,  the  reaction  upon  consumption 
is  almost  immediate,  the  standard  of  comfort  rises, 
greater  variety  and  quantity  of  food  are  demanded,  bet- 
ter clothing  and  larger  or  more  comfortable  houses. 
When  wages  fall,  the  contrary  effects  are  produced. 
When  wages  are  at  a  low  level,  the  workers  consume 
large  quantities  of  bread;  when  wages  advance,  they 
adopt  a  more  varied  diet.  During  the  recent  years  of 
relatively  high  wages,  the  quality  of  the  clothing  cus- 
tomarily worn  by  working  people  has  risen  sharply. 
This  improvement  in  quality  accounts  in  a  large  measure 
for  the  increased  cost  of  clothing  in  individual  budgets 
because  textiles  have  not  shared  in  the  advance  of  prices. 

299.  Reactions  of  consumption  and  exchange. — The 
reactions  of  consumption  upon  exchange  have  already 
been  discussed  in  connection  with  price  movements. 
Here  it  may  be  noticed  that  price  movements  have  an 
important  effect  upon  consumption.  The  first  effect  of 
an  advance  in  price  is  normally  a  diminution  in  con- 
sumption. Those  consumers  who  are  just  able  to  af- 
ford a  weekly  consumption  of,  let  us  say,  five  loaves  of 
bread  when  bread  is  at  ten  cents  per  loaf,  will,  if  their 
resources  remain  unaltered,  be  unable  to  afford  more 
than  four  loaves  if  the  price  advances  to  twelve  and  a  j 
half  cents  per  loaf.  Those  consumers  who  are  just  able  i 
to  afford  five  lojves  plus  the  equivalent  of  one  more  loaf 
in  miscellaneous  food  will  have  the  option  of  cutting  off 
either  the  miscellaneous  food  or  one  loaf;  they  cannot  [ 
afford  both. 

Thus  an  advance  in  the  price  of  bread  will  lead  to  I 
diminished  consumption  of  bread  and  also  to  diminished  | 
consumption  of  other  foods.     If,  on  the  other  hand,] 


PBODUCTIVE   COXSUMPTION  sj, 

pen^s  of  highways     ^h    «^P"d.t,,re  than  during 
account  of  this  fact.  depression  on 


W' 


u> 


PART  V:    THE  ECONOMIC  ASPECTS 
OF  THE  STATE  AND  MUNICIPALITY 

CHAPTER   I 

PHOTECTION   AND    FREE    TRADE 

found  i„th  ..ation.  ^,,e,..  uls^'z^^^z:;: 

industry  andtadJt  Tc'T^  '""T.  '"*"^^""^  -'*»> 

loQuial  .^^  ^stomary  to  apply  the  expression  in  a  col- 

•rio,l  „f  I^       •"     .^°  ""*''  "•'""t  '-Syo.  This  was  the 
"''  °f  the  mitmt,on  and  development  nf  f,^  f- J  ^ 

growth  ( 


Bets     TU^      L  r--—  ".  iiitr  growtn 

r  '•    ^'"^  subsequent  period  from  1870 


331 


e  factory 
until  the  pres- 


JSv 


334 


FX'OXOMK'S 


ent  time  has  also  l)een  a  period  of  free  trade;  Init  it  lias 
lieen  characterized  by  an  unprecedented  anioiint  of  pa- 
ternal k'^istlation. 

The  (tniiinds  of  objection  to  tlie  interti<  ice  of  gov- 
ernments with  iiuhistry  and  commerce  are  that  the  f{<iv 
ernnient  is  less  likely  to  know  what  should  Ik;  done  in  tlii' 
case  of  a  particidar  industry  than  the  persotis  who  currv 
it  on;  that  the  consumer  or  buyer  may  generally  lie 
trusted  to  l(K)k  after  his  own  interests;  and  that  if  lie 
were  not  to  lie  trusted  the  inter\-ention  of  the  State  would 
be  inexpedient,  because  it  would  tend  to  destroy  or  to 
prevent  the  growth  of  self-reliance.  The  doctrine  grow 
at  a  time  when  the  State  was  not  conspicuous  for  the 
competence  ot  its  functionaries,  and  when  remorsck'ss 
exploitation  of  the  people  by  the  State  in  industrial  en- 
terprises had  assumed  great  importance,  as  in  Russia, 
for  exani])le — especially  from  about  1720  until  17j0. 
The  doctrine  of  lamez-faire  assumes  prominence  as  a 
reaction  whenever,  either  under  an  absolute  or  under  a 
democratic  rule,  the  State  threatens  to  absorb  industrial 
enterprises  and  to  exploit  the  labor  of  the  people. 

801.  Regulating  foreign  trade. — The  State  may  at- 
tempt entirely  to  prevent  foreign  trade  by  means  of  de- 
crees or  enactments,  as  in  the  case  of  the  Berlin  Decrees 
issued  by  Napoleon  I  as  a  war  measure  against  Great 
Britain. 

On  the  other  hand,  the  State  may  attempt  to  excludt 
by  means  of  very  high  tariflFs,  which  have  the  effect  ot 
prohibiting  the  importation  of  all  or  some  commoilitifi 
which  might  be  imported  if  there  were  no  prohibitory 
tariff.  Such  prohibitory  tariffs  are  generally  retaliaton'. 
that  is,  they  are  imposed  for  the  purpose  of  forcing  com- 
mercial or  political  concessions  from  other  nati"!'.'- 
They  may,  however,  be  intended  for  the  purpose  of  pn> 


nioTi;(r..,N  and  k,„,,,  thadk        3.,., 

ttcti,|K  native  in,l,«tries  l,y  i,„,,„,i„^  ^  ,  ■   ,,  ^  , 
im|)ortation  i:.  in.,H.ssil,lc.    If  Huv  «r..  »~l.     «"'«y  "at 
".c-asurc..s  which  have-  the-  .ffect     •"'    "'^"'^•""^  ''X 

Italy.  """'''^*  «••"'«"«  a.  Austria  ami 

802.  Protective  tariff— A    i,r,.f    r 

tivo  maniifaftiirer  can  compete  uitl,  ti     f  "" 

ic  jjoiicy  ot  protection,  one  or  Imtl.  ,.<•  +. 
'luences  ensue.     Either  the  t«Wff  ,™  ™"'*- 

to  nrevenf  fl,„\i         f-  "^  '*  '""eased  in  order 

prieeto  ^^'"^TT"  ^•"'"P^t't'™  from  reducing  the 
i^  c  mXo  or^t"^''  *''«  <;-'>  exporter  c„n  fnter 
bine  andC  a  trist      t7:    T  T""^-*"--  ^^m- 

the  tn,;V  •    ^  ''"■'''^' '""'  *?"en  rise.    If.  howerer 

«'e  tn.sts  compete  with  one  another,  to  the  e^tenTthat' 


1^ 


?    •»•« 


334 


ECONOMICS 


the  price  is  diminished  to  the  point  at  which  the  foreign 
explorer  can  enter  into  competition,  the  price  may  be 
farther  depressed  unless  the  tariff  again  becomes  protec- 
tive by  being  increased. 

The  principle  upon  which  the  effect  of  tariffs  upon 
prices  may  be  determined  has  already  been  explained 
(p.  186) .  The  more  general  effects  under  the  conditions 
discussed  briefly.  A  tariff  system  under  the  conditions 
of  a  rapidly  developing  modern  nation  has  an  obvious 
tendency  to  become  very  intricate  because  it  must  follow 
the  increasing  intricacies  and  inter-relations  of  industry 
and  commerce.  If  it  did  not  do  so,  the  law  of  substitu- 
tion would  render  it  of  no  effect.  As  the  values  of  goods 
alter  in  relation  to  one  another  the  tariffs  must  follow 
these  alterations;  otherwise  the  manufacturers  of  some 
goods  would  be  deprived  of  their  protection  while  those 
of  others  would  be  over-protected. 

The  increasing  intricacy  of  the  ta  "iif  and  the  apparent 
or  alleged  need  for  frequent  revision  makes  it  notably 
a  political  issue.  The  effect  of  this  condition  is  that  tlie 
Government  is  drawn  into  the  vortex  of  commercial  re- 
lations. At  one  moment  the  interests  of  commerce  are 
sacrificed  to  political  exigency,  while  at  another  moment 
the  wider  political  interests  are  sacrificed  to  commercial 
exigency.  The  interests  of  the  two  fields  of  politics  and 
commerce  are  not  identical  because  the  first  concerns 
what  are  assumed  to  be  the  permanent  interests  of  the 
nation  and  the  latter  what  are,  in  general,  the  temporary 
interests. 

303.  Tariff  for  revenue. — A  tariff,  no  matter  what 
its  intention  may  be,  acts  as  a  protective  measure  uniiss 
it  is  offset  by  an  excise  duty  upon  native  PiAnufactures. 
It  may,  however,  be  a  tariff  for  revenue  jiily  if  it  is  im- 
posed exclusively  upon  goods  which  cannot  be  the  sub- 


PROTECTION  AND  FREE  TRADE     335 

jects  of  domestic  manufacture.    The  tariff  of  rr...  «  ■. 
am  imposes  import  di.t.Vc  '"^  ^«""  o*  trreat  Brit- 

in  practice  depend  chlfll  u  "'  '"'^'""^-    ^^  "'""t 

liquors  and  on"!  smatnun  rV"'  ''"*'^''  °"  "'^'''«We 
enee  has  .shown  th^JuT,  T™°^'*'«-    Experi- 

relied  upon  to  X^t  Zi:!:^--"-^^^^^^^  ^^ 
supplemented  by  other  source,  nt  t-  /  ^  """'*  ^ 
beenmadeinanoVrpLrp  85  "'"'  '"^"*'°"  ''^^ 
.  304.  "Free  trade"  in  Great  Sin  -The  9t  . 
jmpose  uo  tariff  except  upon  e^ZZ^^^  *"*!  ""^^ 
impose  neither  customs  nor  exd "du  ier  A I'r  ""'I 
this  kmd  would  be  a  policv  of  fr.  T  ^    •     ^  ^'"^  °^ 

-se     No  nation  adopts  Xspo^^  *%tel*'^  f"'* 
preach  is  made  bv  Pr^af  u  -^  .''""f-     -Ine  nearest  ap- 

IS  true  of  India.  revenue.    The  same 

ti^stri;r:a^tiis?n^^"  *°  '^  p°>'^-^'  °^  ^-e 

circumstanceY  Th    fmpoi^^^^  °"-'"^  historical 

ments  of  mechankTal  IZr  '"r"*'°"*  «"d  improve- 

ei.hteenth  a^dT    ;S'Ta7';t"^^^  """^^  ^  ^''^ 
turv  were  nnf  „^i  f   •   ^    *  °^  ^''^  nmeteenth  cen- 

poT;E;irLriL';r  ,];*"■  '-^ "» «■ 

forbidden   and  ,0  fnr  ?       ^""'^  "iventions  was 

But  these  in  en'olrc^.ir'^/''^'^*'^^'^  P™*^^. 

there  not  exredrGrtliT"",'''^"  "^'^^^'J  had 
xistea  m  Great  Br.tam  a  class  of  free  hirable 


m 


if 


L-«'4 


336 


ECONOMICS 


laborers,  which  at  that  time  '  did  not  exist  in  any  consid- 
erable numbers  in  any  other  country.  This  class  was  free 
of  obligations  of  the  kind  generally  known  as  feudal — 
susceptible  of  being  hired  by  any  one  and  more  or  less 
mobile.  The  class  was  greatly  re-enforced  by  the  decline 
of  agriculture,  which  took  place  upon  the  importation  of 
foreign  grains  in  spite  of  the  duties  which  were  then  in 
force.  These  grains  were  imported  largely  from  the  con- 
tinental ports  in  the  earlier  and  from  the  United  States 
in  the  latter  part  of  the  period. 

When,  under  the  pressure  occasioned  by  the  potato 
famine  in  Ireland,  and  by  the  fall  of  prices  and  the  stag- 
nation of  wages  in  the  early  forties,  the  com  laws  were 
repealed  and  the  duty  upon  wheat  gradually  removed, 
agricultiu-e  was  rendered  still  more  unprofitable  and  tlie 
class  of  hirable  laborers  was  still  further  re-enforced  by 
the  stream  of  unemployed  agricultural  laborers. 

These  conditions  were  contemporaneously  almost  abso- 
lutely reversed  in  the  United  States.  There  agriculture 
was  a  profitable  industry,  land  was  cheap  and  ferlllt. 
Grain  could  be  produced  in  competition  with  the  Euro- 
pean farmer  at  a  price  that  secured  the  market.  Capital 
was  attracted  by  the  prospect  of  large  profits  from  agn 
culture  and  the  exploitation  of  raw  materials,  chicHv 
timber.  Wages  were  high,  the  consumption  of  the  work- 
ing population  came  to  so  high  a  level  that  demand  f  ' 
commodities  increased  and  prices  rose.  In  the  thirtit  s  o: 
the  nineteenth  century  every  traveler  in  the  United 
States  was  struck  by  the  enormous  activity.  Yet  this  j 
activity  was  concernetl  almost  exclusively  with  prinwrv 
exploitation  and  with  trade;  industry  had  hardly  be>;un. 
Great  Britain,  on  account  of  the  causes  indicated  j 
above,  had  thus  a  great  start  in  industrial  development 

•  Approiimately  between  1T7S  and  ISSp. 


PROTECTION  AND  FREE  TRADE     337 

phase.    In  many  important  mdustries.  especially  in  shin- 
buJdmg.  the  advantage  is  still  maintaineS  ^ 

a  hTSlvlt?"  °^  !'''  '■"''"'*"'^'  ^^"t---  h««  become 
a  highly  skilled  population,  partly  through  heredita-v 

mfluences  and  partly  through  praciically  cfn  inuous  !„,! 

ployment  m  industries  requiring  technical  skill.     The 

engineers  and  ship-builders  of  the  Tvne.  the  Clyde  and 

the  Mersey  Jong  ago  acquired  the  skill  ;hich  they  have 

retained  and  developed,  so  that  on  these  rivers  is  buit 

he  larger  part  of  the  ocean  shipping  of  tJie  worl 

Under  the  influence  of  this  advance  fn  sSp-buildinrati 

under  the  influence  of  early  navigation  acts  and  th.lr 

reactions.  Great  Britain  has  re'.aiLl.  in  a   arg^  mea 

ure.  the  position  she  obtained  as  the  chief  o^L":;. 

^cause  of  her  carrying  trade,  fhe  incom,.  from  which 
^o™«  a  co„.4.,.ble  portion  of  tl.  total  natlaT^ 

o  adopt,  and  ,t  has  t^.„  in,ii.s,^„sable  for  her  to  main 

"hR-h  did  not  ,>eed  protcrtw,  when  they  were  younff 
|»dustrie«.  have  redly  ,.ver  had  the  exp.:,i.,„:  of  pro^ 
te^t..,  and  with  few  exceptions  h.r  malf^U  J  „. 
terests  have  never  advocated  it.  ^ 

30.5.  "Fair  Trade"  movement-Bunn^  the  "lon^  de 
pr™"  from  187«  till  1886,  a  movement  sprang  into 
ex.stence  known  as  the  "Fair  Tra.le"  movement  ""Thi^ 

"v^L'^ir  tf  "T^"^  "^"*^-^^'""=  ^"*  '^^-  *-^ 
hea  d  of  th       '.        "^"*''"""  '"''•"'■•'"'  ""-^  ""thing  was 
fteard  of  the  subject  m  ,,olitical  spheres  until  the  later 
.«on^for  "Preferential  Trade,'^  This  aJZ'Z 


338 


ECONOMICS 


however,  deprived  of  its  force  by  causes  similar  to  those 
which  put  an  end  to  the  previous  movement,  that  is  to 
sav,  by  a  revival  in  trade. 

It  remains  to  be  said  that,  in  the  event  of  the  present 
sources  of  taxation  in  Great  Britain  being  found  to  be 
inadequate  t»  nisUin  the  burden  of  public  expenditure, 
an  expanded  tariff  for  revenue  might  have  to  be  de- 
vised; and  further  that,  if,  owing  to  the  adoption  of 
free  trade  or  of  even  quasi-free  trade  by  the  United 
States,  the  costs  of  production  of  any  considerable  num- 
ber of  manufactured  articles  were  diminished  in  conse- 
quence of  the  adoption  of  that  policy,  it  might  be  urged 
upon  British  statesmen  with  a  cogency  which  could  not 
be  resisted,  that  the  manufacturing  interests  of  Great 
Britain  ran  risk  of  being  ruined  by  American  competi- 
tion. On  the  other  hand,  the  fact  that  the  major  part 
of  industrial  production  in  Great  Britain  is  for  export, 
renders  it  inevitable  that  foodstuffs,  raw  materials  and 
partially  manufactured  goods  must  be  imported  by  tliat 
country,  duty  free. 


,: 


^I^'W 


fISTKJ*'! 


CHAPTKR    II 

REGULATION    OF    DOMESTJC    TRADE 

try  ITtlf  S"'  ';^«'«''--The  re^,I„tio„   ,  indus- 
nieipahty.    The  rates  of  naires  were  Hv,vl  ,    i  ' 

Jjent  at  these  rates  ..  oft^^.:.,:  XX  ^'"S 

n-eTbiT  ;     '"""^  ^^"""  ^■^■^»"'  «--  -re- 
served bj  the  burgesses  of  tlie  towns.     The  strinffenev 

of  the  regulations  and  the  effectiveness  of    he  JaJ 

monopohes  wh.ch  they  involved  led  to  appeal    byThose 

who  were  excluded  from  trading  privileges  to  th^  ^T 

or  the  larger  unit  of  ad„^nist..tL'     T  ^^etens  o„^^^^^^ 

he  towns  were  held  in  d>eck  by  the  curtien"  „" X 

aboht,on  of  the,r  pnvileges,  and  the  State  either  threw 

-ndustry  and  trade  open  to  unrestricted  con^petTtion  „T 

"t  adopted  regulative  measures  to  replace  those  of  the 

n.un.cjpaht,es     Occasionally,  the  State  confirmed  a  m^! 

n-cpahty  m  the  possession  of  some  privilege  ^  in  The 

power  of  enforcng  some  of  its  regulations      ThI  cen! 

rah.at.on  of  administrative  authority,  in  which  Fra"^ 

M  the  way  m  the  e.ghteenth  century,  enabled  the  State 

o  exercse  regulative  power  over  industry  much  mo^ 

k?ai?  T'-^7"'  '""f '  """  •""■'■"™'*3-  than  the  m" 
incpahties  ha,i  been  able  to  accomplish. 

307.  State  jr^°-«/«//o«.-Leglslation  intended  to  pre- 
unt  engrossing"  or,  in  more  „,odern  phrase,  'Wr- 
•■-S  the  market,"  to  prevent  the  use  of  false  money  a^d 

339 


tit' 

Mil 


a40 


ECONOMICS 


false  weights  and  measures,  and  to  prevent  adulteration 
of  goods,  is  found  in  many  countries.  When  the  fac- 
tory system  developed,  humanitarians  urged  the  regu- 
lation of  the  hours  of  labor  of  women  and  children  and 
of  the  conditions  of  labor  in  general.  In  spite  of  the 
opposition  of  those  who  doubted  the  wisdom  of  state 
regulation  of  industry  on  theoretical  grounds  and  of  tlie 
opposition  of  some  of  the  manufacturers,  and  in  spite  of 
the  apathy  of  the ' .  orking  people,  the  Facton,'  Acts  were 
passed  in  Great  Britain.  Then  came  the  Mines  Act  for 
the  regulation  of  mines  and  other  acts  of  a  like  character. 
Legislative  measures  regulating  industry  in  this  sense 
were  gradually  adopted  by  all  coimtries,  beginning  about 
1840.  In  the  United  States,  factory  legislation  is  the 
prerogative  of  the  several  States,  and  its  character,  there- 
fore, varies.  In  general,  however,  the  English  legisla- 
tion has  been  taken  as  a  model.  In  Canada,  such  legis- 
lation is  in  the  hands  of  .lie  provinces;  and  here,  alsd, 
the  English  model  has  been  followed  by  Ontario.  Tlie 
other  provinces,  although  not  highly  developed  indus- 
trially, have  in  the  main  followed  the  example  of  that 
province. 

The  factory  system  greatly  facilitated  the  control  of 
industrial  conditions  by  the  State.  The  most  reliable 
contemporary  authorities  agree  that  prior  to  the  wide 
extension  of  the  factory  system,  the  conditions  under 
which  labor  was  carried  on  were  sometimes  extremely 
bad.  The  labor  of  children  >vas,  for  example,  remorse- 
lessly exploited  even  by  the  parents  of  the  children,  both 
in  Great  Britain  and  in  the  United  States.  Indeed,  labor 
carried  on  domestically  is  extremely  diflfieult  to  regulate 
without  an  amount  of  interference  with  domestic  privacy  | 
which  would  be  inipraclieable.    The  factory  system,  no 


RKGULATIOX    OF    DOMESTIC   TRADE        34, 

£•  an^t.    r  '^.''"^hmprovement  is  strongly  advis- 
conditions.    T  ,enue    iwr.'T''  *"  ""''-It'-ful 

health.  g^'^'a^J    increased  regard   for  public 

ff:;^>^^L;-^n;:;Sr;;-^^^^ 

;?it%^^rnt;^--~Arn 
&n:^t;;xtti:-s:irf 

silL  t„  r  ',  "  ^'""■'''  '^'*^'  '^«'"  confined  osten- 
a  el  -Td  'if ^"^^  T  ^■'"■'^''  —  -d  ehild'n 
^-ted.    Ihe  ground  of  the  distinction  is  that  ad^Un 


M 


■n 


342 


ECONOMICS 


are  bc'^tcr  able  than  women  and  children  to  insist  on 
what  tiiey  regard  as  proper  treatment.  The  distinction 
is  not  maintained  in  the  Klines  iVcts,  which  are  based 
upon  provisions  for  tlie  safety  of  worl^ers,  irrespective 
of  their  sex  or  age,  nor  can  it  be  really  maintained  in 
factories  where  men,  women  and  children  are  employed 
together. 

309.  Miscella:  I  jus  state  regulations. — The  compara- 
tive failure  of  iii' astrial  combination  to  achieve  by  itself 
any  great  improvement  in  conditions  had  led  the  working 
class  to  demand  legislation  for  the  purpose  of  limiting 
the  hours  of  labor.  The  struggle  for  a  statutory  eight- 
hour  day,  which  has  been  going  on  for  at  least  fifteen 
years  in  nearly  all  the  European  countries,'  has  been 
most  acute  in  those  countries  in  which  the  organization 
of  labor  has  been  least  effective.  There  has,  however, 
been  in  progress  throughout  the  working  class  in  all  the 
industrial  countries,  an  internal  struggle  between  those 
who  desire  a  larger  share  of  political  power  in  general 
for  the  working  class  and  those  who  advocate  the  acqui- 
sition of  benefits  (like  the  eight-hour  day)  from  govern- 
ments under  the  existing  political  systems. 

In  addition  to  such  interference  with  domestic  trade 
and  industry,  nearly  all  States  encourage  invention  by 
the  granting  of  patents  or  tempora.y  monopolies,  and 
some  States  grant  bounties  upon  manufactures.  Can- 
ada, for  example,  grants  bounties  upon  the  nianuf aeture 
of  pig  iron.  Some  States  give  direct  Ijonuses  to  indus- 
tries, and  some  municipalities  grant  land  and  cash 
bonuses,  together  with  immunity  from  local  taxation,  fur 
a  period  of  years.  This  practice  is  extensively  adopteii 
by  Canadian  municipalities. 

*  An  important  incident   in  the  Russian  revolutionan'  movemrnt  at  10OJ-fl      _ 
waj  the  strucfle  for  an  eight-hour  day.  ™      "- 


REGULATION    OF   DOMESTIC   TRADE        343 

In  the  case  of  states,  tl.c  practice  of  granting  bonuses 
to  industries  is  not  undiluted  by  the  spirit  of  coZIh 
t.o„  .  th  other  states,  as  the  practice  in^e  c«se77 £ 

them.    It  IS  not  unusual  for  towns  to  compromise  their 
nninicpal    credit  by   excessive   grantmroTTnis 

trrurdeTof";""!'^'  "  "'^'''"  "««-«''**^  — " 
™!  I   1  ^!.  ,        ^'^"'''  '°  ^^"'-y  as  to  affect  the 

kcal   labor  marke^      Under  such   circumstance?  the 

«n?,      r  """"''  '""'**  "*>■  t*-^  *««''  through  the  r 
-g^bill,  otherwise  they  would  be  unable  to  obJain  l" 

310.  Control  of  quasi-mompolhtic  enterprises—The 
most  important  series  of  regulations  of  the'^sort  apply! 
mg  to  specific  classes  of  enterprises  are  those  S 
^late  to  enterprises  which  in  their  natui^  are  of  a  quast 
monopolistic  character.    Among  these  the  most  consp J- 
uou    are  banks,  insurance  companies,  railways.  eS  ic 
l-ghtmg  companies,  telephone  companies.  expr;ss  S^! 
pan.es  and  the  like.    The  feature  which  ill  of  theseT 
erprises  have  m  common  is  that  each  of  them  comesTn 
ontact  with  very  large  numbers,  and  in  some  cases 
practically  with  the  whole  of  the  public.     This  fact  is 
the  fundamental  reason  for  attempts  to  regullte  such 
enterprises  and  their  predecessors  in  all  ages     The  irv- 
ice  of  the  post  (which  corresponds  to  the  modem  rail- 
way) was  regulated  in  Arabia  at  least  as  early  as  Se 
enth  century     The  services  and  charges  of  wate4  'n 

.men.  and  the  like,  were  regulated  throughout™  u 
rope  from  remote  times  as  the  services  and  charges  of 
^mUar  persons  have  been  and  are  regulated  throughout 

The  fundamental  reaso.i  for  such  regulation  is  not  the 
monopoly  of  the  service,  for  many  rVgulated  services 


m 


344 


ECONOMICS 


are  not  monojwlistic  and  many  quasi-monopolies  are  not 
regulated.  The  reason  is  tlie  universality  of  the  demand 
for  the  service. 

811.  UniiLn.— The  regulation  of  banks  by  the  limita- 
tion of  their  right  to  lend  money,  by  the  limitation  of 
their  right  to  issue  notes,  by  the  requirement  that  they 
should  publish  summaries  of  their  periodical  balance 
sheets  in  a  certain  form,  by  provision  for  the  inspection 
of  their  financial  position  and  the  like,  is  intended  for 
the  protection  of  the  public,  all  of  whom  are  assumed  to 
avail  themselves  of  the  services  of  banks  in  one  form  or 
another.  Thus,  regulation  of  banks  exists  \i\  all  coun- 
tries in  respect  to  some  or  to  all  of  these  particulars. 

In  Canada  the  charters  of  all  chartered  banks  expire 
at  the  same  time,  and  are  all  simultaneously  renewed 
by  a  decennial  Bank  Act.  While  anyone  may  start  a 
bank,  only  chartered  banks  can  issue  notes.  They  are 
permitted  to  do  so  to  an  amount  equivalent  to  the  amount 
of  their  capital  stock.  Chartered  banks  are  not  required 
by  law  to  maintain  specific  proportions  of  reserve  to  lia- 
bilities, but  they  must  hold  a  certain  proportion  of  their 
reserve  in  "legal  tenders"  of  the  government.  Against 
these  "legal  tenders"  the  government  holds  gold,  so  that 
the  government  really  holds  a  certain  proportion  of  the 
reserve  of  the  banks. 

312.  Responmhility  of  government.-— When  the  gov- 
ernment undertakes  duties  of  the  kinds  specified  in  its 
acts,  there  is  an  implied  obligation  that  these  duties  will 
be  efl^ciently  performed.  In  most  countries  there  is  iin 
express  provision  in  the  law  that  the  government  cannot 
be  sued  in  its  own  courts  without  leave  from  its  own  law 
ofllcers.  Such  leave  is  never  wisely  withheld ;  because  if 
it  is  refused,  confidence  in  the  justice  and  good  will  of 
the  government  must  be  diminished.    Whether  such  leave 


HEGULATION    OF   DOMESTIC   TRADE        345 

citizens.  The  gotrnrnnr  V"'"'"*^''  ''•°'"  "'-• ' 
to  regelate.  .LTneSlv  7     ''  ^'"■•^''  "'"^^^akea 

'1—  The  «J.:e„"%f  :°r'"'^^'''■*^"'*- 
owes  its  position  to  a  poDuJar  .\  ^"''""'"'-'"t  H-hich 
<lisiiiis.sed.  ^^"'"'^  '"*^  's  f'at  it  may  be 

eonti?*rh';"g:rtf  °'  r^"-  "^  -n  '-plied 

'"  compensate  in  son,e"..„s!.  e  t.     r'""  ^"^^'•'""ent 
'"in  defaulting  banron  th^  "P""'*""  '"  »  «"- 

<i'''^swerenotlkeni;tl.!:/r"^*''''*  '^"^  P'-^cau- 
'ificate  to  the  banTin  /„       '"f  ;^  '^'  '"•'■«''>«1  «'- 

I-ncipJe  of  resporbilHyST'""'  ^^ "•'''- The 
effectiveness  of  reguattn  is  If  r'"""'"*  ^"'^  '^- 
^ems  an  inevitablfcoiv  "f  tT  "P^''''*'°"'  ^"*  ■* 
One  of  the  argument  aS,/  '■'^"'''*''^^  f"""^"""- 

i^  that  it  rendis  Cpff  Se- TT^^^  ''^'^'^'^"^ 
^■^ts,andthatiteauses  themT  1  '''  "'"'''  "^"  '»*"- 
♦«  )"ok  after  then?  Ex„l  '  ^  r^""  ^''^  «°^'^™ent 
"■ent  is  to  a  lar^  eS  ., T  S""'  ""**  ^^is  argu- 
l'«'ple  wJ,o  have^ol  thf  J  '  ^"*  '"  P"'"*  »'  f«ct. 
"-'selves  on  so  ilJate  ^I  «"- ^''^  '''"  *°  ^"^''''^^ 
"'estabilityofabankTi  *™'*  "^  l"^-**'""  a^ 

'f--  itseemsr':itabts-;r"'°"™'*^^^- 

^'""■e  the  risk  which  a  t^arlnV  •^"''""'"'"*  ^^o^W 
"•"..Id  share  under  Lila?;"*""  '"^"'•""^^  <='>mpany 
;^''ic^.  the  ^overnl  t"t^  ~--;    ^^  the'feel 

^'^'"•'ng  this  risk  or  a  share  of  tt^    J  "  '  "^  '*'' 

tn  l>e  increase,!      Re^H-        \^  ^'*'  ^""^  "-equire 


I 


n 


MI<:«OCOI>Y   IfSOlUTION   TEST  CHAIT 

(ANSI  ond  ISO  TEST  CHART  Nr,  2) 


^  /APPLIED  IM/IGE     Inc 

j^y.  1653    Ea5t   Mom   Stieel 

— -—  Rochestoi,   Ne*    fori.         U609        USA 

'.^S  (716)    *82  -  OJOO  -  Pfone 

^=  (716)   28a-  5989  -To. 


346 


ECONOMICS 


314.  Regulation  of  railKays. — The  most  conspicuous 
example  of  government  regulation  of  special  classes  (it 
enterprise  is  the  regulation  of  railways.  This  is  effectc; 
by  various  means.  In  England  the  railways  are  rejiu- 
lated  partly  by  general  acts,  and  partly  by  specific  acts 
in  respect  to  individual  companies.  The  administration 
of  these  acts  is  entrusted  to  a  Railway  Commission  and 
to  the  Railway  Department  of  the  Board  of  Trade.  The 
former  deals  with  disputes  between  railways,  although 
these  may  also  come  before  the  Law  Courts,  and  with 
disputes  between  the  railways  and  the  public,  althouj^h 
these  also  may  be  made  the  subject  of  ordinary  legal 
procedure;  the  functions  of  the  latter  are  chiefly  to  ad- 
minister the  acts  relating  to  safety  apphances  and  the 
like,  to  hold  inquiries  into  accidents  and  to  act  as  inter- 
mediary between  the  public  and  the  railways  in  case  of 
need. 

In  the  United  States,  the  railways  are  regulated  partly 
by  State  Railroad  Commissions  and  partly  by  the  In- 
ter-state Commerce  Commission.  The  former  deals  with 
questions  arising  within  their  respective  states  and  the 
latter  with  those  questions  which  relate  to  traffic  be- 
tween one  state  and  another. 

In  Canada  the  railways  are  regulated  partly  by  Pro- 
vincial Commissions,  as  in  Ontario,  but  chiefly  by  the 
Dominion  Railway  Commission.  This  Commission 
deals  with  all  questions  relating  to  railways.  It  ap- 
proves and  disapproves  of  rates  submitted  to  it  by  the 
railway  companies;  and  when  these  are  approved  they 
cannot  be  altered  without  notice.  It  decides  questions 
of  terminals  and  the  like,  and  may  within  very  large 
limits  order  the  railway  companies  to  do  certain  things.' 

315.  Economic  effect  of  railvsaji  control. — The  eco- 

'  See  also  the  section  on  "Traffic,"  Volume  III  of  the  Modern  Bobinem  tPit 


REGULATION-    OF    DO.MESTIC    TllADK        347 

nomic  effect  of  the  r  .gulation  of  railways  may  be  briefly 
considered.  Although  the  function  of  regulation  of  rail- 
ways was  primarily  urged  upon  tlie  State  by  tlie  trading 
public  with  the  expectation  that  by  some  means  the  Stat^ 
might  diminish  the  cost  of  railway  transportation,  it  is 
doubtful  whether  this  expectation  has  been  realized  to 
any  material  extent.  In  some  cases,  no  doubt,  where 
the  rate  charged  by  the  company  has  been  a  rack  rate 
-that  IS,  a  rate  which  was  the  highest  rate  which  could 
he  charged  under  conditions  of  effective  monopoly— such 
a  rate  has  been  reduced  by  the  action  of  a  commission. 
But  whether  rates  in  general  are  lower  than  they  would 
iiave  been  without  any  commission,  is  an  extremely  diffi- 
cult question  to  answer. 

If  we  assume  that  until  the  present,  rates  in  general 
have  been  materially  reduced  below  the  point  to  which 
they  would  have  been  reduced  by  the  railway  companies 
spontaneously,  we  must  conclude  that  the  profits  of  rail- 
way enterprise  have  been  also  reduced.  In  that  case 
It  must  be  more  difficult  than  it  would  otherwise  have 
been  to  induce  the  investment  of  capital  in  railway 
enterprise.  A  check  upon  investment  of  capital  means 
restriction  of  competition,  and  restriction  of  competition 
means  relatively  high  rates.  It  might  therefore  be 
argued  that  government  regulation  of  railways,  in  so 
far  as  it  is  effective,  is  not  necessarily  productive  of  a 
net  diminution  of  the  cost  of  transportation  as  a  whole 
and  over  a  long  period. 

A  conclusion  of  this  kind  must,  however,  in  the 
absence  of  sufficient  data,  be  regarded  as  provisional. 
[ihe  regulation  of  railways  in  so  far  as  it  is  concerned 
^«ith  compelling  them  to  use  safety  appliances,  how- 
ever pecuniarily  costly  such  regulation  and  its  effects 
"la.v  I)e,  may  well  be  regarded  as  socially  advantageous 


348 


ECONOMICS 


l)ecause  it  tends  to  diminish  tlie  number  of  railway  acci 
dents. 

316.  The  regulation  of  trustn. — The  most  conspicu- 
ous example  of  government  regulation  of  special  fea- 
tures which  occur  in  many  enterprises  is  the  regulation 
of  "trusts."  The  expression  "trust,"  as  widely  used  in 
the  United  States,  appears  to  have  derived  its  special 
application  to  the  form  of  industrial  combination,  which 
it  now  implies,  from  the  Standard  Oil  Trust  which  wa 
formed  in  1882.  This  trust  united,  by  means  of  a  formal 
agreement,  the  large  number  of  oil  companies  whidi 
had  previously  formed  an  "alliance."  The  original 
"alhance"  was  formed  for  the  purpose  of  securiiij; 
transportation  for  the  product  of  its  constituent  com- 
panies by  means  of  pipe  lines  and  by  means  of  agree- 
ments with  the  railways  companies  to  carry  the  oil  i 
reduced  rates.  Other  combinations  of  oil  companies 
were  formed  at  the  same  time  as  the  "alliance."  Be- 
tween it  and  the  most  important  o^'  'hese  combinations 
there  was  a  prolonged  struggle  whi  :.  lasted  until  187 
when  the  opponents  of  the  Standard  Oil  "alliance"  were 
defeated.  As  consolidated  in  1882,  the  Standanl  Oil 
Trust  absorbed  altogether  forty  companies  besides  the 

iness  of  a  number  of  individual  oil  producers.  Such 
,  ..s  the  original  form  of  the  typical  "trust;"  but  as  tiie 
expression  afterwards  come  to  be  used,  any  grou])  of 
persons  who  combined  together  with  the  intention  of 
restraining  competitive  trade  or  of  fixing  the  prices  of 
commodities  was  regarded  as  a  trust.' 

The  modern  trust  is  thus  the  successor  of  the  "en- 
grosser" of  the  early  part  of  the  nineteenth  century;  and 
it  has  acquired  a  similar  unpopularity.    The  "engrosser" 

'  This  definition  is  fthhre^-iated  from  the  definition  given  by  Mr.  S.  C.  T.  DodA 
Solicitor  of  the  Standard  Oil  Company,  in  an  article  in  the  Harvard  Law  Re^n^ 
for  November,  1893,  on  "The  Present  Legal  Status  of  Trusts." 


nKGULATION   OF    DO.MKSTIC    TRADK        34!) 

Imiffht  up  all  the  grain  or  other  commodity  which  his 
capital  and  credit  enabled  him  to  buv,  fixed  h-r  own 
price  and  endeavored  to  hold  the  grain  until  he  o.  .dined 
that  price.  Sometimes  he  was  successful;  sometimes  a 
(,'ood  harvest  rendered  his  scheme  impracticable;  some- 
times his  granaries  were  broken  open  by  a  mob  and  his 
grain  distributed  gratuitously;  and  sometimes  he  was 
prosecuted  by  the  government.  The  modern  trust  may 
be  regarded  as  being  exposed  to  similar  experiences. 

317.  Standard  Oil  Trust. -The  formation  of  the 
Standard  Oil  Trust  was  accomplished  by  the  appoint- 
ment of  a  board  of  trustees,  to  whom  the  stock  in  the 
constituent  companies  was  assigned  by  the  owners-  the 
trustees  issued  trust  certificates  in  exchange,  and  divi- 
dends were  paid  to  the  holders  of  these  certificates.  This 
process  gave  the  trustees  the  control  of  all  the  con- 
stituent companies. 

This  method  was  evidently  adopted  for  the  purpose  of 
avoiding  an  accusation  of  acting  in  "restraint  of  trade  " 
The  Standard  Oil  Company  had  several  imitators,  and 
in  1890,  one  of  them,  the  Sugar  Trust,  in  respect  to  one 
of  Its  constituent  companies,  was  prosecuted. 

The  Supreme  Court  of  the  State  of  Nev/  York  de- 
clared that  the  trust  was  illegal,  and  in  1892  the  Supreme 
Court  of  Ohio  ordered  the  dissolution  of  the  Standard 
Oil  Trust.  The  Sugar  Trust  then  organized  a  new  com- 
pany, which  purchased  all  the  shares  of  the  constituent 
companies;  but  the  Standard  Oil  trustees  simply  divided 
the  shares  of  the  constituent  companies  among  them- 
selves and  retained  the  control  as  formerly. 

In  1899,  however,  the  Standard  Oil  Company  of 
•imerica  was  formed  under  a  charter  of  the  State  of 
New  Jersey,  and  this  company  absorbed  the  stock  of  the 
constituent  companies.     The  wide  extension  of  the  busi- 


m 


>9 


I 
I 


•M> 


350 


ECONOMICS 


ness  of  the  company,  not  only  in  America,  but  over 
nearly  the  whole  world,  the  extent  to  which  it  influenctd 
or  controlled  railways  and  steamship  lines,  and  the  eni- 
ba-kation  of  the  group  of  financiers  which  administered 
its  affairs  into  many  other  enterprises,  attracted  uni- 
versal attention  to  the  proceeding.  They  did  not  have  a 
monopoly  of  the  production  of  oil,  although  in  1004 
they  controlled  abou*;  84  per  cent  of  the  domestic  and 
90  per  cent  of  the  export  trade. 

Hostility  to  the  company  grew  with  its  own  growth, 
It  was  subjected  to  a  series  of  prosecutions,  and  once 
again  it  was  ordered  to  dissolve.  The  dissolution  of  the 
company  does  not  appear  to  have  effected  any  change  in 
the  control.  The  group  which  effectively  controlled  the 
company  continue  to  control  the  elements  of  which  the 
company  was  composed.  The  dissolution  seems  to  have 
affected  only  its  form,  not  its  substance. 

318.  Objections  to  trusts  in  the  United  States. — Tlie 
great  furore  against  trusts  in  the  United  States  is  easily 
intelligible.  The  large  company  with  its  power  over 
capital,  esj)ecially  through  the  banks  which  it  controlled, 
o\ier  railways,  and  even  over  governments,  appeared  as 
a  menace  to  the  small  trader.  He  could  not  compete 
with  it;  and  it  might  intentionally  or  otherwise  com- 
pletely crush  him.  To  the  small  .trader  such  influence 
upon  his  banker  and  upon  his  railway  company  as  the 
trust  could  exert  are  impossible,  and  he  naturally  regards 
the  trust  as  an  unscrupulous  competitor. 

In  so  far  as  the  proceedings  of  the  trusts  are  dishonor- 
able, they  cannot  be  defended ;  when  they  are  illegal  it 
is  not  beyond  the  power  of  the  law  courts  to  deal  witli 
them;  but  the  demand  that  they  should  be  abolished  has 
been  shown  to  be  very  difficult  to  satisfy.  The  trust 
is  apparently  an  inevitable  development  of  the  joint' 


REGULATION   OF   DOMESTIC   TRADE        35, 
stock  company  and  is  not  really  fundamentally  dissimi 

forjhe  purpose  of  making  profit:  the  Lst  I  n^rj' 

t  J  siaStr'-f  "^  f'"'''"^  tru.t.-n,  notion  that 
ortn  1  r  V"  '*"  P""'^'  *°  P"^^^"*  the  growth 

leaj  Joubtfu?    a""  r*'r''*  ""•"•     ^'^  ""*'-  "  «t 

-rrfr^2siE;:-:srts 
:traS;^.-r=----^^ 

or  a  court  of  law  place  an  arbitrary  limit  uponTZu  P 
•ng  together  of  persons  for  the  purnose  nf  „„,f       ^ 
an  act  or  conducting  a  busines!  S  ^i^L^^^^ 
performed  or  conducted  by  an  apparent!y  sSer  or 
different groupof  persons?    Evenif  the  State succtded 
P  miposmg  an  arbitrary  limit,  in  what  manner  ,^uW 
this  procedure  increase  the  "national  dividend"  oTthe 
national  welfare?    In  so  far  as  the  question  of  prefer 
nces  m  railway  rates  or  otherwise  is  concerned,  it  would 
appear  o  be  practicable  to  prevent  these  by  th^  consist 
nt  app  .cat       onega,  measures  to  those'who  pract^ 

nat"n  of  thai"?!?  ""''"*°°''  ''"''  ^^^^  J'«'«  '««<="mi- 
nation  ot  that  kind  now  exists. 

Beyond  that,  however,  it  is  difficult  to  go.    A  chance 

^veral  is  quite  ummportant  if  the  same  group  of  per- 
«'ns  remain  m  command.  •  Public  hostil^v  is  indeed 
argely  directed  against  specially  conspicuou  groups 
be  ause  they  use  or  are  alleged  to  use  the  power  Zy 
possess  unscrupulously,  not  because  they  possess  the 


I 


352 


ECONOMICS 


power.  If,  then,  unscrupiilousness  is  prevented,  a  large 
part  of  the  hostility  must  disappear. 

820.  Stock  ■watering. — Apart  from  the  public  objec- 
tion to  the  operation  of  the  trust,  interest  has  been 
troused  by  the  methods  which  have  been  employed  in 
their  organization.  The  aggregate  capital  invested  in 
the  physical  plant  of  the  constituent  companies  having 
been  ascertained  and  deduction  from  or  addition  to  this 
aggregate  being  made  in  respect  to  forced  sale  or  forced 
purchase,  the  aggregate  amount  was  usually  increased 
by  the  amount  estimated  as  representing  the  good  will 
of  the  going  businesses  which  were  brought  into  the 
trust.  This  was  sometimes  done  by  means  of  a  pool, 
without  any  re-issue  of  capital.  But  where  the  constitu- 
ent companies  were  absorbed  in  a  new  company,  which 
was  formed  for  the  purpose,  or  where  the  capital  of  each 
company  was  subjected  to  readjustment  in  view  of  the 
altered  possibilities  of  the  business,  the  aggregate  of  the 
elements  above  indicated  were  customarily  converted  into 
bonds  or  into  bonds  and  preferred  stock.  These  bonds 
or  shares  of  preferred  stock  were  transferred  to  tiie 
shareholders  of  the  constituent  companies  as  payment 
for  their  enterprises,  or  the  shareholders  were  paid  in 
cash  as  was  arranged.  In  any  event,  the  bonds  and  the 
preferred  stock  represented  the  whole  of  the  cost  to  the 
amalgamating  syndicate  (generally  composed  of  the 
chief  among  the  oiRcers  of  the  constituent  companies), 
of  the  plants  and  businesses  which  had  been  combined. 
The  intention  of  the  promoters  of  the  combination  was 
to  increase  the  aggregate  value  of  their  properties  by 
means  of  the  combination. 

Since  the  bonds  and  preferred  stock  bear  a  fixed  rate 
of  interest  and  dividend,  it  is  clear  that  if  a  balance  of 
profit  should  remain  after  the  payment  of  the  fixed 


REGULATION   OF    DOMKSTIC    TRADK        333 

charges  upon  tlie  bonds  and  the  pitltTrcd  stock,  there 
would  exist  no  means  of  pro  rata  .livision  cxeeptin^  by 
occasional  or  i)eriodical  bon.i.s  as  the  profit  accrued 
The  effect  of  such  a  plan  would  be  that  if  a  bonus  were 
anticipated  or  declared,  the  bonds  or  preferred  stock  (the 
holders  of  which  being  entitled  to  participate  in  the 
bonus)  would  rise  in  price.     Under  normal  conditions 
the  price  would  be  the  amount  which  the  market  -sti- 
mated  on  the  value  of  the  bonds  at  the  determined  rate 
of  interest  plus  the  value  of  the  bonus.    If  the  holders 
of  the  bonds  and  jjreferre.I  stock  would  sell  neither  the 
securities  they  held  nor  their  rights  to  the  bonus,  there 
would,  of  course,  be  no  market,  nor  would  there  be  a 
market  if  all  securities  of  the  kind  in  (juestion  were  so 
depressed  that  no  one  wanted  to  buy  either  the  bonds  or 
shares  or  their  contingent  rights  at  any  price. 

The  only  practicable  alternative  to  the  bonus  system  is 
the  cr-ation  of  common  stock  to  be  held  by  the  possess- 
ors of  the  bonds  and  preferred  shares  for  the  exclusive 
purpose  of  providing  a  means  whereby  surplus  earnings 
over  and  above  fixed  charges  under  the  original  financial 
arrangement,  might  be  distributed.  In  one  sense,  this 
common  stock  is  usually  wholly  fictitious  because  it  is 
not  at  the  beginning  of  the  new  enterprise  represented 
either  by  capital  in  a  physical  sense  or  by  good  will  as 
estimated  by  the  parties  to  the  original  bargain. 

Yet  sometimes  the  stock  eve-  at  the  beginning  has  a 
present  value,  apart  from  a  prospective  value,'  because 
a  part  of  the  price  of  the  bonds  is  paid  for  them  in  con- 
sideration of  their  being  accompanied  by  a  certain  num- 
Der  of  shares  of  stock.  This  discounted  value  is  taken 
into  account  in  the  price  of  the  bonds.  The  shares  are, 
therefore,  not  in  the  position  of  being  valueless,  but 
are  in  the  position  of  having  attached  to  them  a  dis- 
C-l-23 


354 


FX'ONO.MUS 


rounted  value  in  respect  to  possible   future  earninj? 
,    wer. 

If  the  company  is  successful,  a  dividend  will  eventu- 
ally be  paid  up  i.  the  common  stcwk;  if  it  is  not  success- 
ful, no  dividends  will  be  paid  and  the  company  may  even 
default  in  the  payment  of  the  dividends  on  its  prrferre(' 
stock  and  on  the  interest  upon  its  bonds.  In  the  form< 
case  the  public  will  clamor  for  the  stock  in  the  market 
and  will  compete  for  tho  purchase  of  it,  hoping  to  gain 
a  share  of  the  further  anticipated  profits  of  the  successful 
ei.terprise;  in  the  latter  case,  common  stock  and  bonds 
will  be  alike  unsalable. 

It  must  be  allowpd  that  the  practice  of  issuing  common 
stock  in  this  manner  affords  opportunity  for  fraud, 
through  misstatements  of  the  possible  profits  of  the  cii- 
terp'ise.  The  owners  of  the  bonds  and  preferred  stock 
usually  retain  in  their  han  sufficient  amount  of  com- 
mon stock  to  enable  them  to  retain  effective  control  of 
the  property.  This  ma  kes  it  possible  for  them  to  man  i  p- 
ulate  the  market  in  the  common  stock  of  their  own  entor- 
prise  with  advantage  to  themselves. 

Such  reduced  to  a  simple  form  's  the  process  of  stock 
watering.  The  effects  of  the  process  do  not  differ  from 
those  of  the  inflation  of  prices  of  land,  with  which  indeed, 
some  of  the  stock-watering  operations  are  closely  con- 
nected. Legislative  measures  against  fraud  are  some- 
times suffir '^ntly  enforced  to  diminish  or  prevent  it;  l)iit 
no  legislative  measure  can  suffice  to  prevent  people 
eager  to  possess  something  for  A-hich  they  have  not 
toiled,  from  entering  a  trap  baited  with  the  thing  tiicy 
want  to  acquire.  When  fraud  and  ignorance  have,  how- 
ever, been  eliminated  from  the  process  known  as  stock- 
watering,  there  remains  in  it  an  element  of  deliberately 
accepted  and  discounted  risk  which  is  an  inevitable  eon- 


HWSIt.ATIO.V    OF    IKIMKSTK     THADE        3M 

coniitant  of  cntinuoM.s  Lusincs  and  wl.ich  must  be  pro- 
\  Klcd  for  III  sonic  appropriate  niantier. 

The  practiec  of  stock  watering  as  almve  descril)c<l.  is 
«.der  than  the  tn.st;  l,„t  in  ,„ost  of  the  newer  trusts  it 
appears  as  an  iiisq.arahle  incident.  Kxecpt  in  so  far  as 
tlie  practice  may  be  accompanid  by  deliberate  fraud  and 
"xcept  in  so  far  as  it  may.  .viii^  to  its  nature,  divert 
capital  from  really  pro,lucti\oenter|.risos  to  apparently, 
but  not  really,  productive  enterprises,  it  cannot  fairly  be 
held  o  be  socially  disadvantageous,  no  matter  how  many 
people  Ignorant  of  business  may  Ik;  involved  in  loss  in 
consequence.  Such  people  may  be  expected  to  make 
loolisli  investments  in  any  case. 

821.  Conclusion  of  indnnlrial  com mimon.— The  con- 
clusion of  the  Industrial  Commission  of  the  United 
.States  regarding  trusts  is  that,  assuming  the  cost  of 
production  of  the  commo.lities.  which  have  Iieen  sub- 
jected to  their  influence,  to  l.ave  .liniinished,  the  margin 
ot  profit  obtaiiutl  by  the  trusts  has  increased,  since  prices 
to  the  consnnur  ha^     either  remained  the  same  or  have 
advanced.    Such  «      ^icl.iMon  would  be  equally  difficult 
to  defend  and  to  re,  ,ae.    The  assumption  upon  which  it 
IS  based  is,  howew  •     „robably  ?n  many  cases  question- 
able.    The  law  ,.         .     :  l,„ig  returns  in  mineral  ex- 
ploitation, for  ex!.  tenis  to  lead  rather  to  an  in- 
crease in  tlie  cost  .,.      r,„|uction  than  to  a  dii.inution. 
f'ven  if  it  were  soumi.  in  an  economic  sense,  to  attribute 
to  the  trust  all  the  evi       v|„H,  popular  imagination  has 
suggested,  the  trust   i         " 
,»?rowth,  like  a  goitre,  cm 
to  cut  off. 

322.  National  ou-ncrslu 
"btain  the  land  of  a  counti 
or  by  purchase.     It  may  eithi  i-  i 


b(    regarded   as   a   morbid 
1-i.  iCti'ijs  to  sustain  and 


'nM 


'I'lic  State  may 
'v,  by  coiKjuest 
and  manage  it 


'A. 


359 


KCONOMICS 


by  State  offlcinls,  or  it  nmy  stll,  lease  or  give  it  away 
ill  free  grants.  If  the  State  retaiiieil  and  udininistereil 
the  land,  it  would  \ie  necessary,  if  it  were  to  iic  utilized, 
to  do  so  by  meons  either  of  for-ed  or  of  free  hired  lal)or. 
There  are  importont  historieol  instances  of  large  ureas 
of  land  being  held  and  administered  by  the  State  both 
by  forced  lulnir  (as  in  Ri'ssia,  especially  in  the  times  of 
Peter  the  (Jrcot  and  Katherinc  II)  and  by  free  bin  I 
labor  (as  in  Russia  at  the  present  time). 

Given  ade(|uately  skilful  administration,  there  is,  in 
the  nature  of  .nings,  no  reason  why  the  produce  of  a 
State  domain  should  not  be  as  large  as  that  of  a  private 
domain  of  the  same  dimensions  under  similar  manage- 
ment. Kxperience  has  shown,  however,  in  every  histor- 
ical case,  that  considerati'  is  other  than  economic  havo 
compromised  the  economi  .1  success  of  State  administra- 
tion of  land.  The  administration  has  been  either  too 
lax  or  too  rigid.  ^Vhen  it  was  too  \px  the  State  suf- 
fered, and  when  it  was  too  rigid  the  p'  ,  le  suffered,  and 
often  relielled.  Ifk  both  cases  the  Sta  .  lost  materially 
and  in  prestige. 

823.  Dktribution  of  land  a  general  polic;/.— The 
practical  difficulties  which  arose  from  the  intimacy  bt- 
tween  the  State  administration  and  the  economicol  rela- 
tions of  the  people  were  so  great  that,  in  all  highly  devel- 
oped modern  nations,  the  policy  of  alienating  the  public 
lands  has  developed.  This  policy  appeared  to  be  neces- 
sary in  newly  discovered  or  newly  conquered  countries  in 
which  the  population  was  scanty  and  to  which  it  was 
impossible  to  induce  immigration  on  other  terms  tliaii 
by  liberal  grants  or  sales  of  land.  Such  grants  or  sales 
were  made  to  individuals  on  conditions  of  settlement 
or  to  companies  on  condition  of  obtaining  settlers. 
Direct  revenue  from  the  land,  even  if  such  a  revenue 


HKorr.ATio.v  or  noMvsrir  ti.adi;      ,,,7 

<^ul<l  l)c  recovered  hv  tlip  "<fiit..   ...„    i 

;  o,e  of  the  public  ,„„.,.  .,f  borrLc-f^TS:  '^  ^ 

ated  or  .s  .n  course  of  alienation,  at  all  event,  n  .If 
as  any  desire  for  possession  has  n^'ade^ ^e^  deT 
ll.e  pubhc  lands  having  been  alienated,    eTumption 

irfhase     Th?/ 1  •'  '«  T'^'  ''-^  conflseutionTr  by 
ZZ«T  , ,  '*  '"^^"'"'^  '""y  '^^  'Jismissed  as  bein^ 

npract,cable,  apart  from  any  question  of  justice  tS 
Lose  who  have  been  induced  to  become  citizen"  Jthe 
respect,ve  countries  by  promises  of  free  land  Z  f  a 
method  appears  to  be  Equally  impttlcT  ^  "17^ 

tJnf      "'^j,''""' '''^  the  community  and  the  releasVof 
great  numbers   from   the   labor   of  production      The 


^i 


4 


338 


ECONOMICS 


economic  disturbance  which  such  an  operation  would  in- 
volve would  be  incalculable. 

The  same  considerations  apply  to  the  acquisition  by 
the  State  of  the  means  of  production  other  than  land. 
The  complicated  mechanism  of  modern  industry  could 
not  be  acquired  by  any  State  without  formidable  inter- 
national difficulties.  Such  difficulties  would  be  great  in 
proportion  to  the  magnitude  of  the  interests  involved. 
The  result  of  the  operation,  if  it  were  carried  out,  might 
not  be  an  increase,  but  rather  a  diminution  of  the 
"national  dividend,"  unless  it  is  supposed  that  produc- 
tion for  the  State  went  on  as  actively  as  it  now  does  for 
individual  advantage. 

324.  Nationalization  of  industry. — That  it  would  be 
possible  for  a  modern  State  to  undertake  gradually 
the  administration  of  all  industries  and  of  all  sys- 
tems of  transportation  and  the  like — in  other  words, 
to  possess  itself  of  the  means  of  production — may  be 
granted.  But  when  this  is  accomplished  would  the 
"national  dividend"— that  is,  the  aggregate  of  product- 
be  less  or  more  than  it  is  now?  If  the  characteristic  of 
production  under  the  capitalist  system  is  a  feverish  haste 
in  exploitation  and  manufacture,  and  if  on  social  grounds 
this  is  a  matter  of  objection,  is  it  to  be  concluded  that 
production  under  a  system  of  State  collectivism  would  be 
less  in  the  absence  of  this  feverish  haste  than  it  is  now? 

Even  if  the  system  of  distribution  under  State  man- 
agement were  ideal,  there  seems  grave  reason  to  believe 
that  there  would  be  less  to  distribute.  It  may  be  that 
the  world  is  too  well  off  and  that  it  consumes  too  much; 
but  it  would  be  hazardous  to  diminish  production  on  that 
hypothesis. 

The  fundamental  social  question  is  not,  after  all,  one 
of  distribution,  but  is  one  of  production.     The  methods 


REGULATION   OF    DOMESTIC   TRADE        359 

of  distribution  are  no  doubt  defective,  but  to  diminish 
production  is  not  necessarily  a  means  of  mending  them. 
It  IS  suggested  that  this  test  of  production  may  be  ap- 
phed  to  any  project  having  for  its  object  the  national- 
ization of  any  industry.  The  experience  of  govern- 
ment management  in  all  countries  and  among  all  races 
seems  to  show  that  it  is,  at  least,  doubtful  if  under  na- 
tionalization of  industry,  so  large  a  "national  dividend" 
would  be  available  as  under  the  existing  system.  It  is 
possible  that  the  "national  dividend"  might  be  dimin- 
ished even  though  the  system  of  compulsory  service  in 
the  army,  which  obtains  in  Continental  Europe,  were 
applied  to  industry,  for  experience  has  not  shown  con- 
clusively that  forced  labor  is  as  productive  as  voluntary 
labor. 

The  socialist  Premier  of  France,  M.  Briand,  did  not 
act  illogically,  from  the  socialistic  point  of  view,  in  call- 
ing out  striking  railway  men  as  reservists  and  requiring 
them  to  return  as  soldiers  to  the  work  which  they  had  left 
as  railway  servants.  The  close  connection  between  com- 
pulsorj'  service  in  one  branch  of  the  activities  of  the  State 
and  the  probability  of  compulsory  service  in  another 
could  not  have  been  more  fully  demonstrated. 

325.  Trusts  are  a  step  towards  national  ownership.— 
Such  a  test  as  is  suggested  above  would  not,  however,  by 
any  means  exhaust  the  subject.  Neither  increase  of  pro- 
duction nor  improvement  in  the  system  of  distribution 
are  the  sole  ends  of  social  life.  Desire  for  political  power 
to  the  extent  of  complete  control  of  the  executive  gov- 
ernment by  the  working  class,  in  so  far  as  such  desire 
exists,  is  not  likely  to  be  diverted  by  fear  of  what  must 
appear  to  it  as  the  remote  contingency  of  a  possible 
diminution  of  the  product  of  labor.  For  those  who  en- 
tertain the  idea  that  the  evolution  of  society  is  making 


360 


ECOXOJIICS 


for  the  nationalization  of  the  means  of  production,  the 
trusts  have  no  terrors.  The  greater  the  combination, 
the  more  effective  the  monopoly,  the  more  definite  the 
control  over  prices  which  the  trust  exercises;  in  short,  the 
more  nearly  the  power  of  the  trust  approximates  to  the 
power  of  the  State,  the  more  is  proved,  from  this  point 
of  view,  at  once  the  necessity  of  owning,  rather  than  of 
controlling  the  trusts  by  the  State  and  the  practicability 
of  the  management  l,y  the  State  of  large  enterprises. 
This  view  is,  however,  based  on  very  large  assumptions. 

Apart  from  the  question  of  the  possible  diminution 
of  product  under  a  system  of  complete  nationalization 
of  the  means  of  production,  there  are  also  the  questions 
of  the  international  character  assumed  by  modern  com- 
merce, and  of  the  international  character  of  modern 
capital. 

The  question  of  the  position  of  those  industries  which 
the  State  might  absorb  is  an  important  one.  At  present, 
holders  of  industrial  securities  are  subject  to  the  fluctu- 
ations of  the  market  for  such  securities.  When  profits 
are  high  and  trade  is  brisk,  dividends  are  high.  When 
trade  is  dull,  dividends  may  disappear.  If  the  State  as- 
sumed the  industries  and  undertook  to  pay  interest  upon 
the  capital  invested,  on  any  conceivable  basis  of  valu- 
ation, the  State  credit  would  be  involved  in  the  payment 
of  a  fixed  rate  of  interest.  At  the  present  moment,  there 
is  a  large  class  of  security  holders  in  all  countries.  Un- 
der the  nationalization  of  industry  this  class  would  be 
enormously  increased.  Its  interest  would  be  by  no 
means  identical  with  those  of  the  workers  in  the  State 
workshops.  A  new  and  serious  class  struggle  might 
easily  develop  between  the  security  holders  and  the  work- 
ers, even  if  a  large  number  of  the  latter  were  to  be  found 
among  the  former.     The  security  holders  would  require 


REGULATIOX   OF   DOMESTIC    TRADE        361 

to  secure  and  to  exercise  considerable  political  power 
m  order  to  prevent  the  possibility  of  repudiation.  Tv- 
proposal  o  absorb  industrial  enterprises  by  merely  con- 
fisca  .ng  them  would  not  only  divide  society  into  Two 
hosfe  camps,  but  would  involve,  in  effect,  the  ex  er- 
rmnatjon  of  one  of  them.  In  any  case  it  w;uld  appear 
hat  the  socahst  State  would  encounter  problems  not 
ess  senous  than  those  which  are  now  encountered  un.le 
the  capitahst  system. 


CHAPPTER   III 


TAXATION 


326.  The  revenue.  —  The  peculiarity  which  distin- 
guislies  the  revenue  of  the  State  from  private  revenue 
is  that  while  the  amount  of  private  expenditure  depends 
upon  the  amount  of  income,  the  amount  of  the  State 
revenue  is  determined  by  the  amount  of  expenditure, 
(liven  certain  expenses,  the  finance  minister  of  the  State 
is  obliged  to  find  the  revenue  to  meet  them  either  bv 
collecting  it  fr^m  the  people  or  by  borrowing  it. 

Collection  of  revenue  may  be  effected  in  two  ways— 
by  taxation  or  by  receiving  payment  for  direct  services 
rendered  to  certain  persons  by  State  officials.  The  rev- 
enue from  taxction  is  derived  from  the  people.  Under 
whatever  form  it  may  appear,  it  is  a  deduction  from  tlie 
incomes  of  those  who  contribute  to  it,  or  it  may  be  re- 
garded as  a  deduction  from  the  available  aggregate 
national  income. 

327.  Taxes  on  income. — Taxes  may  be  imposed  di- 
rectly upon  those  upon  whom  it  is  intended  their  burden 
should  fall,  or  they  may  be  imposed  upon  persons  by 
whom  they  may  be  transferred  to  others.  An  income 
tax  is  an  example  of  a  direct  tax  and  an  import  duty  is 
an  example  of  an  indirect  tax.  The  policy  of  a  country 
as  to  the  method  of  taxation  must  depend  largely  upon 
the  customs  methods  to  which  the  people  have  become 
accustomed.  A  tax  which  causes  irritation  is  primn 
facie  not  a  good  tax. 

see 


Taxation 


363 


For  example,  the  people  of  Great  Britain  have  become 
accustomed  to  an  income  tax,  wliile  in  the  United  States 
the  new  meome  tax  is  unpopular  because  the  people  are 
not  habituated  to  it.  Income  tax  is  levied  in  Canadian 
cities  without  formidable  objection,  but  in  Berlin  an 
attempt  to  impose  an  income  tax  led  to  widespread  re- 
fusal to  pay  it.  A  municipal  income  tax  in  Great  Bri- 
tain would  be  likely  to  meet  with  similar  opposition. 
\\  hile  heavy  import  duties  upon  manufactured  goods 
and  upon  agricultural  produce  are  in  force  in  the  United 
States  and  in  Canada,  such  duties  are  not  levied  in  Great 
Mntain,  and  two  recent  movements,  one  in  1884  and  the 
other  since  1900,  having  for  their  obiect  the  levying  of 
such  duties,  have  met  with  hostility. 

328.  Imports  and  cxports.—'The  interest  of  a  ere  .itor 
country,  that  is  to  say,  a  country  whose  people  have  a 
large  part  of  their  capital  invested  abroad,  must  lie 
rather  in  the  facilitation  of  imports  than  in  imjjeding 
them,  because  the  interest  of  its  foreign  investments  and 
the  repayment  of  capital  invested  abroad  are  insured  by 
tliese  imports. 

On  the  other  hand,  the  interest  of  a  debtor  country, 
that  is,  a  country  which  has  borrowed  heavily,  may  lie  in 
discouraging  importation,  and  in  encouraging  e.xporta- 
♦■in,  the  latter  being  the  means  by  which  it  meets  its 
^ign  obligations.  When  a  country  is  borrowing, 
hurt-ever,  it  must  import,  although  it  may  not  do  so  from 
the  country  from  which  it  borrows.  Canada,  for  in- 
stance, has  been  borrowing  heavily  from  Great  Britain, 
but  has  not  been  importing  heavily  from  that  country. 
The  loans  effected  in  Great  Britain  have  entered  Canada 
as  imports  from  the  United  States.  The  transference 
has  been  conducted  by  means  of  the  extensive  credits 
established  in  favor  of  Great  Britain,   in  the  United 


H&i 


:|j 


jifc 


364 


ECONO-MICS 


States  through  the  interest  upon  investments  there,  and 
through  the  repurchase  by  that  country  of  some  of  tii( 
securities  formerly  held  in  Great  Britain.  In  the  main, 
Great  Britain  has  been  selling  United  States  securities 
and  buying  Canadian.  This  process  accounts  to  some 
extent  for  the  falling  off  in  price  of  United  States  securi- 
ties, because  the  domestic  demand  for  them  has  not  been 
sufficient  to  digest  them  at  the  price  at  which  they  stoiKJ 
when  the  British  and  European  demand  was  greater 
than  it  is  now. 

The  credit  of  a  country  depends  very  largely,  although 
not  exclusively,  upon  the  character  of  its  imports  duriiij; 
a  period  of  borrowing.  If  its  imports  during  that 
period  consist,  in  the  main,  of  articles  of  luxurious  con- 
sumption, its  credit  must  diminish  because  it  will  be  evi- 
dent that  the  money  which  it  has  borrowed  has  not  been 
productively  employed.  If,  on  the  other  hand,  i.s  im- 
ports consist  in  the  main  of  iron  for  railway  and  other 
construction  and  of  machinery,  it  is  evident  that  the 
money  it  has  borrowed  has  in  the  main  been  expended 
productively.  It  must  be  realized,  however,  that  it  is 
possible  to  strain  credit  by  borrowing  even  for'  these '' 
purposes,  because  the  expenditure  in  highly  durable 
forms  of  capital  may  be  greater  than  the  general  eco- 
nomic conditions  justify. 

329.  International  trade  depends  upon  comparatke 
prices. — Since  the  quantity  of  goods  which  a  country 
exports  must  depend  upon  the  comparative  prices  of  the 
goods  in  that  country  and  the  countries  to  which  it  ex- 
ports, it  is  evident  that  a  country  in  which  all  manufac- 
tures are  protected  by  a  high  tariff  is  not  in  a  favorable 
position  to  export  manufactured  goods  unless  these  :■■ 
sold  abroad  at  a  lower  price  than  they  are  sold  at  home. 
This  condition,  which  is  known  as  "dumping,"  ncca- 


TAXATION 


365 


sionally  occurs.  When  it  does  occur,  however,  it  is  im- 
mediately followed  by  a  reaction  against  protection,  on 
tiie  ground  that  the  foreigner  is  placed  in  a  more  favora- 
ble position  as  purchaser  than  the  native  customer. 

In  general,  a  country  which  protects  its  native  manu- 
facturers heavily,  and  which  therefore  holds  these  at 
higher  prices  than  countries  in  which  they  are  not  so 
iieavily  protected,  if  it  exports  at  all,  must  export  raw 
materials  or  the  products  of  exploitative  industry.  Thus 
Canada  exports  wheat  and  lumber  and  the  United 
States  wheat  and  cotton. 

A  prohibitory  tariff,  if  it  be  successful  in  excluding 
goods,  cannot  contribute  revenue  to  the  State.  Even 
a  protective  tariff  is  not  necessarily  productive  of  rev- 
enue. For  revenue  purposes,  a  relatively  low  tariff 
must  be  adopted  or  other  means  of  taxation  must  be 
found. 

330.  Chmfication  of  revenue.— 'Rtvmw  may  be  de- 
rived from  the  sale  of  natural  resources  (as  in  the  case 
"f  timber,  lands  or  minerals) ;  it  may  be  derived  from 
leases  (as  in  the  case  of  lands) ;  it  may  be  derived  from 
license  fees  or  special  taxes  imposed  upon  certain  busi- 
nesses. It  may  be  derived  from  a  series  of  special  taxes 
upon  business,  based  upon  income  or  upon  capital,  or 
otherwise;  or  it  may  be  derived  from  a  general  tax  upon 
property,  or  by  a  general  tax  upon  income,  in  both  cases 
with  certain  inferior  hmits,  or  by  means  of  a  graduated 
scale.  Or,  revenue  may  be  derived  by  means  of  a  tax 
'Don  land,  urban  or  rural,  or  both.  All  of  these  methods 
'ia>e  been  adopted  in  the  United  States  and  in  Canada. 

In  Upper  Canada,  before  Confederation,  licenses  to 
carry  on  certain  businesses  formed  a  large  part  of  the 
revenue.  Later,  licenses  to  cut  timber  and  to  engage 
m  mining  in  certain  places  brought  in  a  considerable 


>'A\ 


am 


ECONOiMICS 


income.  Import  duties  were  levied  at  Quebec  as  well 
as  at  the  upjxjr  Canadian  ports,  and  were  afterwards 
divided  in  certain  proportions  between  the  upper  anil 
lower  Provinces.  When  the  "casual  and  territorial 
revenues  of  the  Crown"  were  transferred  to  the  provin- 
cial governments,  a  small  amount  was  realized  from  sales 
of  land  and  from  an  insignificant  land  tax  which  was 
generally  in  arrears. 

After  Confederation  the  import  duties  were  with- 
drawn from  provincial  control,  and  the  revenue  collected 
by  the  provinces  was  supplemented  by  a  Dominion  sub- 
sidy. The  revenue,  as  thus  constituted,  did  not  suffice 
for  the  provincial  .'xpenditures,  and  further  sources  of 
revenue  had  to  be  found.  A  beginning  was  made  in 
Ontario  by  the  imposition  of  Succession  or  Death  duties 
and  later  by  the  taxation  of  corporations. 

In  the  United  States  the  revenue  from  certain  licenses 
and  the  import  duties  are  reserved  for  the  Federal  Clov- 
ernment,  while  states  have  separately  engaged  in  experi- 
ments in  other  means  of  raising  a  revenue. 

Notwithstanding  ardent  advocacy  for  many  years. 
land  taxes  form  nowhere  the  bulk  of  the  revenue  of  mod- 
ern nations.  In  new  countries,  where  the  population  is 
scanty  and  the  primary  need  of  the  country  is  immigra- 
tion, a  heavj'  land  tax  or  an  illiberal  policy  respecting 
land  would  act  as  a  deterrent  of  immigration.  In  older 
settled  countries,  a  heavy  land  tax  is  more  feasible,  liut 
its  imposition  tends  to  throw  many  burdens  upon  the 
shoulders  of  the  landowner  because  the  prestige  of  land- 
owning has  been  diminished  and  the  price  of  lanil 
reduced.  The  ownership  of  land  has  been  wholly  cdDi- 
merciali/.ed.  Through  the  influence  of  taxation  anil 
otherwise,  the  landowner  refuses  to  bear  the  social  bnr- 
dens  to  which  he  formerly  submitted  as  an  incident  d 


'I'AXATION  3„7 

lii.  position.     For  exan.plcs  the  maintenance  of  hn-al 

mtahy  thrown  upon  the  States.  The  jjain,  if  any 
from  taxatum.  is  thus  at  least  pa.tially '^ff.s^t  by  Tn' 
...crease  .n  the  publie  bunlens.  The  soeiul  a.Jva,fta«e 
wh.eh  may  be  hel.l  to  aeerue  from  the  elimination  "f  the 
n<m.eeonom,c  element  in  lan.lhol.ling  is  not  necessarily 
acc-ompanied  by  a  net  econonuc  j^nin  ^ 

381.  Graduated  income  ta,v.~lu  must  be  allowed  that 
popular  conception  of  taxation  has  l.en  changing 
«th  the  changes  u.  the  doctrine  of  the  functions  of  the 
State.     Smce  the  State  has  come  to  be  regar.led  not 
-nerely  as  a  regulative  agent,  but  also  as  cJlector  a 
.st.butor  of  w;ealth.  the  idea  of  discriminating  betwee 
ose  forms  of  mcome  which  are  presun,e,l  to  I,e  earned 
abor  o   some  kind  and  those  forms  of  income  which 
appear  to  be  due  to  adventitious  gains  or  unearned  in- 
c  me.  as  ,t  .s  called,  has  crept  into  the  taxation  policy 
of  many  countries.  ^    ^ 

A  rough  and  ready  method  of  effecting  this  discrimi- 
na  .on  .s  the  graduated  income  tax.  In^'this  svsteT  t 
IS  assumed  that  up  to  a  certain  point  the  receiver  of  an 
.ncome  may  earn  it,  and  that  above  ti,at  point  his  income 
.s  reccved,  but  not  earned.  Sin.ilarly  i  is  proposed  to 
apj-ropr-ate  for  the  purposes  of  the  State  b/mean^of  a 
special  tax  upon  sales  of  land,  at  least  a  part  of  tha^ 
"rt.on  of  the  increased  value  of  land,  where  such  t 
rease  occurs,  which  is  presumed  to  be  due  to  adventi- 
.ons  causes  for  example,  to  the  general  increr.se  in  the 
numbers  or  m  the  wealth  of  the  population 

It  should  be  observed,  that  while  a  graduated  income 
ax  may  react  by  driving  persons  who  enjoy  large  in! 
comes  out  of  a  country  where  these  incomes  are.  in  thdr 
op....on,  exorbitantly  taxed,  a  heavy  tax  on  land  might 


i 


368 


KCONOMlf'H 


react  in  diminUhing  the  nobility  of  property  in  land  l)y 
rendering  such  pr<)j)er  y  insecure,  an(I  might,  therefort, 
resui.  in  tlie  diminution  of  the  value  of  land  in  such  .' 
way  as  to  diminish,  instead  of  increasing,  the  reveniio 
yielded  by  a  land  tax. 

882.  Two  theories  of  taxation. — It  is  clear  that  in  hII 
such  experiments  in  taxation,  those  who  are  respon.sil>le 
for  the  policy  of  the  State  must  consider  not  mertly 
what  the  State  may  presume  it  has  a  "light"  to  take 
from  the  people,  but  what  economic  reactions  may  take 
place  owing  to  the  exercise  of  that  "right." 

There  are,  broadly,  two  theories  of  taxation.  By  one 
theory  it  is  explained  that  the  taxation  which  is  imposed 
by  a  well-ordered  modern  State,  is  simply  a  payment  li ;• 
the  citizens  for  services  rendered  by  the  State  to  tliini 
— services  of  organization,  defence,  etc. — and  that,  thirt- 
fore,  the  increased  taxation  is  not  a  net  increase.  Imt 
merely  an  addition;d  payment  for  more  numerous  or 
more  valuable  services.  In  fact,  from  this  point  of  view. 
there  is  really  no  tax  burden  because  the  State  returns 
at  least  as  much  value  as  the  tax  represents — that  is,  at 
least  as  much  value  in  the  consumers'  sense,  since  tlie 
State  is  presumed  to  render  the  services  at  their  cost 
taken  as  a  whole. 

The  other  theory  explains  that  all  taxation  is  a  burden 
upon  the  people,  that  it  means  a  deduction  from  tlieir 
disposable  incomes,  and  that,  although  the  services  which 
are  rendered  by  the  State  must  be  rendered,  their 
cost  is  so  much  greater  than  the  cost  when  rendered  by 
private  persons  that  the  more  services  the  State  under- 
takes the  greater  the  disadvantage  of  the  people.  This 
is  so  because  they  have  to  pay  more  in  taxes  than  they 
would  have  to  pay  for  the  services.  According  to  this 
theory,  it  is  not  expedient  for  the  State  to  take  out  of  the 


ind  l)y 
refiirt, 
nicli  .' 

:  in  hII 
)n.sil>l(' 
licroly 
[>  take 
y  take 

}y  one 

iposcil 
eiit  li. 
)  tliiiii 
thtri- 
le,  Iiiit 
Dus  or 
f  view, 
•etiinis 
t  is,  at 
ice  tlie 
ir  cost 

burden 
n  tiieir 
i  which 
,  their 
red  by 
under- 
This 
,n  thev 
to  this 
:  of  tlie 


TAXATION  ,,„ 

IxK-kets  of  the  Hoplc  any  .....re  than  is  nb.solutcly  .„  ■«- 
s«ry.  1  Ins  ca.um  wo.,'  |  n-duce  the  .sc-rvicc.s  „f  the  S  ate 
t"  a  m.„,„u  ....  unless  it  cnM  he  shown  that  these  ser  ' 
Kes  were  bc.,nff  ren.lere.i  hy  the  State  as  econon.iry 
(- the^^^^^  sense)  as  they  c.uld  he  rendered  by  prii^ 

;^st!^:!:;';!:  *:!:'^- '-'"'-•>-•-■- «.o 

Tc  fhaii 
•hid)  is 
external 
!>en("  N. 
'Wic  ail- 
m  fiitili 
fcssa   \'  or 


services  rendered  by  ,.,e  State  compensate 
compensate  for  it.  aj.pears  to  in.luce  tic  I., 
niore  or  less  prevalent,  that  ihc  State  is 
heneheent  a^ent.  which  Rratiiitously  l,c«« 
I  his  view  apjHjars  to  lead  to  extiavaKanw  , 
'nmistration,  to  the  embarkation  of  the  St« 
enterprises  and  to  the  employment  of  n,. 
".competent  functionaries.     The  other  t;„  „ry  is    ^ 
ciated  with  two  famous  doctrincs-the  .hx-trhu     fife 
ab.so  ute  sovereignty  of  the  State  „n,l  the  doetrin,    Z 

results  from  the  exercise  of  the  function,  of  the  *<  1 
and  IS.  therefore,  wholly  due  to  the  St..         Tl .    f  ^Jr 

ecttd.  but  ,ts  implications  remain  in  such  for,,  „  ... 
theory  of  taxation  in  que  ,tion.  The  latter  .lo..tr  s 
qurte  at  variance  with  the  idea  that  any  share    ..•  u.e 

oduct  IS  due  to  any  of  the  contrihutories  to  p,  .,  .t 

St  '  f     't''"'I''"*  '"^"'  "'  ''"e  t"  the  exercise  of  th. 
State  function  as  a  condition  precedent  to  the  realisation 
fanv  surplus  private  or  public,  this  is  equally  tr..e  of 
the  value  of    abor.     It  is  true  of  ..1!   ,.„i  i 

-"";»'■ -.e.  T;::,:L';t'>:^r"f,s 

ProJMt,  fcirf  for  He  p„,p„,e  rf  ncqnirfng  „„„,„, 
..I».  p,.«„..I  h,v,  ,„„g  l,,„,  .  „,rt«„  r„li„„i„|,,Ld 

C— I— 24 


m 


*i?i 


370 


ECONOMICS 


some  of  their  have  been  incorporated  into  the  tax  laws 
of  vuriotw  countries.  In  so  far  as  siicli  projects  arc  car- 
ried out,  the  effect  of  them  is  a  diminution  of  individual 
liberty. 

388.  Who  paya  <(WM?— While  certain  taxes  cannot 
fail  to  he  borne  by  those  ujion  whom  they  are  directly 
levied  by  the  state,  the  class  of  taxes  customarily  know  n 
as  indirect  may  be  transferred  from  the  shoulders  of 
the  person  upon  whom  they  arc,  in  the  first  instance,  im- 
posed, to  the  shoulders  of  other  iiersons.  For  example, 
an  excise  duty  upon  tobacco  or  spirits  is  levied  upnn 
the  manufacturers,  and  a  customs  d\ity  upon  the  siiiiie 
commodities  upon  the  importers;  but  usually,  the  duty 
in  both  cases  is  tran-iferred  to  those  who  purchased  the 
commodities  for  consumption.  The  case  of  other  im- 
ported goods  is  less  obvious. 

The  question  is,  can  the  incidence  of  taxation  bi'  de- 
termined with  any  appro«ch  to  precision?  The  prin- 
ciple upon  which  it  may  t  j  determined  has  already  Imp 
described  in  connection  with  the  effect  upon  prices  it 
the  imposition  of  a  tariff.  It  is  indeed  through  prices 
that  the  reactions  of  taxes  occur.  By  means  of  trans- 
actions in  which  the  goods  which  are  the  objects  of  tax- 
ation pass  from  one  hand  to  another,  the  taxes  are  trans- 
ferred from  one  shoulder  co  another. 

If  reference  is  made  to  the  previous  statement  it  will 
be  gathered  that  in  respect  to  taxes,  in  gene  il,  as  in 
respect  to  import  duties  in  particular,  the  state  of  the 
economic  atmosphere  will  determine  the  classes  of  per- 
sons upon  wliom  they  will  fall.  If  the  atmosphere  were 
highly  competitive  as  regards  production  of  the  com- 
modity upon  which  the  tax  is  imposed,  then  the  ta\ 
would  tend  to  fall  upon  the  consumer;  if  it  were  cnm 
pletely  monopolistic  as  regards   production,  the  'is 


TAXATION' 


371 


""^^ 


tax  Ihws 
s  arc  car- 
individual 

es  cannot 
c  directly 
ily  knoHii 
lulders  of 
tance,  iiii- 
•  exampio, 
I'ied  upnii 

the  sill  lie 
,  the  duty 
:hased  tlit 

other  iin- 

ion  he  lie- 
Tiie  i)rin- 
•eady  liwii 
I  prices  if 
ugh  pricfs 
i  of  trans- 
cts  of  tnx' 
;  are  tranS' 

lent  it  will 
e  l\,  as  in 
tate  of  the 
ses  of  per- 
phere  were 
f  the  com- 1 
en  tlic  taj| 
were  en"!' 
1,  the  'mI 


«;.M.I<I  tend  to  fall  upon  the  pr.Hh.ccr.    In  all  intcr.nc 
<liutc  positions  the  tax  would  Ik-  .livided 

nai.  ilarfrin,,!  pro.i,urr.-  -There  are. howc•^•er.  cvrtain 
miphcafons  of  tk-  general  tli.,.,-y  «hi..|,- „,,,,,,.  ,„  ,,;.' 
«,n  taxes.    J    „-e  a.ss.nne  that  the  c-o,„petitlon'  of  lalK,rcr 
uth  lahorer  for  en>ployn.ent  is  so  keen  that  all  lalK,rcr, 
re  In  nK  at  the  lowest  possihle  ,v„Ke  upon  which  it  is 
poss-hle  for  then,  to  subsist,  it  is  clear  f.at  to  in.pos.  a 
.=x  upon  w„Kes  nouhl  he  ahsur.l-under  such  con  htion, 
la  H,rers  could  pay  no  taxes.     If  .e  assume  that  „,,- 
.l".vers  are  all  working  upon  ,„,.rKi„„l  ,,r„Ht.,.  that  is. 
or  subsistence  wa^es  of  superintendence,  it  is  clear,  also 
tim    a  tax  upon  the  gross  income  of  such  employers 
-u  d  not  he  realised.     If  „„  „t,.,„,„t  t.,  ,„„,,,  Y,  ^'j;^ 
"..ule.  all  such  employers  must  he  driven  ou»  of  business 
S.m.lar  conditions  might  be  assumed  in  respect  to 
-n-l  and  to  capital.     If  the  land  yielded  no  rent'  a  tax 
•    on  .t  conid  not  be  realize.I  unless  the  lun.lowner  had 
..tlier  sources  of  income.     If  the  capital  viel.le.l  r-.o  in- 
terest a  tax  upon  it  would  diminish  tlie  "amount  of  I' 
and  If    he  tax  were  continue.!,   that  amount   would 
actually  be  exhausted.     If  all  the  various  economic 
groups  were  on  the  margin,  that  is  to  sav,  at  the  very 
j'"-nn.um  of  subsistence,  the  collection  of  taxes  would 
e  impossible.     If  any  one  member  of  the  group  is  at 
he  minimum,  the  eollect:.n  of  a  tax  upon  that  member 
would  be  imi)f.ssible. 

335.  Economic  strength  of  ^roups.-Afram,  if  the 

conom,    eonditions  of  the  time  (a  time.  L  instance, 

J^e  tl,at  immediately  succeeding  an  epidemic)  enabled 

1!S7T  *".''^'"""'l  t'"^  "•'•":'■  "f  tl>e  net  product. 

«stence  of  the  employer,  capitalist  and  landowner,  the 


I 


37e 


ECONOMICS 


whole  burden  of  taxation  must  fall  upon  the  laborers. 
The  same  is  true  of  the  other  groups. 

If,  for  example,  the  landowner  absorbed  in  rent  all  the 
net  product— all  the  value  of  the  product  of  productive 
operations  in  excess  of  the  bare  subsistence  of  laborers, 
employers  and  capitalists — the  burden  of  taxation  must 
fall  upon  his  ample  shoulders.  If  the  capitalist  absorbs 
through  usurious  rates  of  interest  all  the  excess  income 
of  the  community  above  bare  subsistence,  he  in  turn  will 
have  to  contribute  all  that  is  collected  for  the  main- 
tenance of  the  State.  This  is,  however,  only  anotlitr 
way  of  saying  that  everybody  must  pay  taxes  either 
directly  or  indirectly  through  reduction  of  his  income  in 
some  form  or  another.  The  essential  point  to  remem- 
ber is  that  taxes  are  borne  by  persons  and  not  by  things. 
A  tax  upon  a  commodity  is  a  tax  upon  the  consumer 
of  the  commodity  or  upon  the  producer— a  tax  upon 
land  is  a  tax  upon  the  person  who  uses  it. 

It  is  true  that  a  tax  upon  land  might  be  paid  by  a 
person  who  possessed  land  but  did  not  use  it.  In  tiiat 
case  he  would  require  to  pay  the  amount  of  the  tax  nut 
of  resources  other  than  those  yielded  by  the  land  in 
question.  Thus,  the  tax,  although  levied  in  respect  of 
his  land,  would  really  be  paid  from  income,  derived 
otherwise  than  from  land  and  would  therefore  be  a  tax 
upon  that  income.  If  he  borrowed  the  money  to  pay 
the  tax  upon  land,  he  could  do  so  only  up  to  the  limit 
of  the  security  which  the  land  represented.  This  seeiir- 
ity  would  be'  determined  by  the  use  to  which  the  liiiiJ 
might  be  put  and  the  amount  of  the  tax  which  had  liecu 
paid  would  form  a  deduction  from  the  jirice  recoi^illllt 
for  it,  if  it  were  eventually  sold,  or  from  the- rent  nli- 
tained  or  idealized  by  tlie  use  of  it. 

In  any  case  a  tax  upon  land  must  be  paid  by  a  persni 


TAXATION 


373 


or  group  of  persons.  It  <locs  „„t  appear  as  a  mvsteri- 
OJ.S  product  fro„.  tl.c  land  or  (Von.  anvthinK  c-S  I. 
.'tier  words,  a  tax  is  ahvays  a  .leduction  rn„„  i  con." 
and  the  taxes  of  a  nation  are  therefore  a  deduct  of  1 
the  aggresate  national  income 

tion  of  nricr''""  ".'"'''  "'"  "'™'^'"'  '"  *'"^  determina- 
tir  buver    'T  "'"  T  ^-"^f-'-ed  from  the  seller 

ng  to  the  economic  strength  or  weakness  of  the  buyer 
nd  seller,  respectively.     The  least  economic  strengSf  s 
o  be  found  ,n  tl,ose  buyers  or  sellers  who  are  just  fbove 
l.e  margm.     They  are  able  to  pay  without  pLSng  ou 
of  existence,  and  they  are  too  feeble  in  an  eco„o2 
sense  to  res.st.     The  greatest  economic  strengthTto  be 
ound  m  the  indifferent  buyer  or  seller.     He  vJi H  be 
e  at  once  to  buy  or  sell  at  his  own  price  and  this  price 
"'11  "1  general  contain  as  little  of  the  tax  as  may  be. 


CHAPTER  IV 


THE  BUDGET  AND  PUBLIC  DEBTS 


336.  Public  experuUtnrcH. — The  expenditure  of  the 
State  is  customarily  classified  in  the  same  manner  as 
that  of  any  individual  may  be  classified — according  as 
the  expenditure  is  on  account  of  necessaries,  conveni- 
ences or  luxuries.  Clearly,  the  things  necessary  to  a 
State  are  those  which  concern  its  existence  as  a  State. 
The  form  of  the  State  will  determine  what  these  things 
are.  If  it  is  an  independent  individual  State  or  a  federa- 
tion of  states,  it  will  be  necessary  to  secure  itself  against 
foreign  aggression  or  even  foreign  insult  by  means  of 
a  suiBcient  military  force,  and  ■*:  will  be  necessary  to 
secure  itself  against  internal  disorder  by  means  of  a 
sufficient  police  force.  It  will  also  be  necessary  to  pro- 
vide for  the  administration  of  the  government  by  tin 
appointment  of  judges  to  administer  the  law  and  liy 
provision  for  the  legislators  appointed  or  elected  to 
make  the  law. 

According  to  the  modern  idea  of  the  State  these  an 
the  primary  necessities.  Among  the  conveniences  may 
be  reckoned  the  maintenance  of  a  diplomatic  service  tor 
the  purpose  of  transacting  business  with  foreign  nations. 
and  for  the  assistance  of  its  own  "nationals"  who  travel 
aboard.  Among  the  luxuries  may  be  considered  tin 
maintenance  of  more  or  less  dignified  and  luxurious 
establishments  for  the  conduct  of  the  government  and  tlu 
374 


THE    BUDGET   AND    PUBLIC   DEBTS        375 

rewarding  of  persons  who  have  rendered  service  to  the 
State. 

In  modern  times,  tlie  largest  individual  item  in  the 
catalogue  of  expenditures  in  nearly  all  the  great  nations 
IS  the  expenditure  for  military  purposes.  But  many 
nations  have  undertaken  large  expenditures  on  other 
grounds.  Germany  and  Great  Britain,  for  example, 
expend  very  large  sums  upon  education  and  the  latter 
has  undertaken  huge  expenditure  in  the  reorganization 
of  the  system  of  land  tenure  in  Ireland.  Germany, 
Russia,  Italy  and  Canada  have  devoted  immense  sums 
to  the  construction  of  canals  and  of  railways;  and  the 
United  States  has  undertaken  the  completion  of  the 
Panama  Canal. 

The  expenditures  of  all  modern  nations  for  civil  pur- 
poses have  increased  with  the  demands  upon  the  State 
for  services  in  various  directions.  The  State  is  regarded 
as  the  universal  servant  of  the  public,  and  when  private 
enterprise  is  lacking  the  State  is  called  upon  to  render 
the  service.  In  democratic  countries  it  is  difficult  for 
governments  to  resist  the  pressure  to  extend  the  func- 
tions of  the  State.  The  cost  to  the  community  as  a 
whole  is  frequently  disregarded,  •  d  it  is  often  assumed 
and  sometimes  eloquently  announced  in  Parlit  .ents 
that  great  enterprises  may  be  undertaken  by  the  State 
without  cost  to  any  one.  It  is  obvious  that  this  is  an 
illusion. 

A  check  upon  and  audit  of  expenditures  is  imposed 
in  Great  Britain  by  the  Treasurer,  and  in  Canada  by  the 
auditor-general  and  the  Treasury  Board.  It  is  the 
business  of  th.;  auditor-general  to  see  that  only  legally 
authorized  expenditui-es  are  n-ade  and  that  the  various 
departments  keep  witliin  the  votes  made  on  their  ac- 
count by  Parliament. 


I 


37(1 


ECONO.'MICS 


387.  Annuul  budget— The  liudget  or  annual  state- 
ment of  revenue  and  expenditure  by  the  finance  minis- 
ter is  a  very  usual,  but  not  a  universal,  feature  of  public 
financial  methods.  In  France  and  Great  Britain  an 
approximately  similar  method  is  employed  and  the 
method  adopted  by  Canada  is  the  same  as  the  method  of 
Great  Britain. 

Immediately  upon  the  dose  of  the  financial  year  it  is 
the  custom  for  the  Chancellor  of  the  Exchequer  in  Eng- 
land and  for  the  Finance  Minister  in  Canada  to  make  a 
statement  regarding  the  revenue  and  expenditure  of 
the  year  which  has  just  closed  and  to  announce  his 
estimates  of  the  revenue  and  expenditure  of  the  year 
which  has  just  commenced.  The  statement  and  the  es- 
timates are,  of  course,  prepared  by  the  permanent 
officials  of  the  Treasury  acting  in  consultation  with  the 
ofr.cials  of  the  revenue  and  of  the  spending  depart- 
ments. 

The  estimates  of  revenue  for  the  coming  year  are  in 
the  first  instance  based  upon  the  yield  of  the  past  year, 
the  amount  being  added  to  or  subtracted  from,  accord- 
ing as  the  view  is  taken  that  the  ensuing  year  will  be 
-nore  or  less  productive  than  the  previous  year.  When 
the  Minister  of  Finance  ainiounces  the  changes  whidi 
he  proposes  to  make  in  the  revenue,  he  may  reduce  or 
increase  one  or  more  taxes,  and  then  the  necessary  modi- 
ficatior  i  upon  the  gross  revenue  which  these  changes 
involve  will  be  stated  by  him. 

In  case  the  Finance  Jlinister  announces  the  reduction 
or  the  increase  of  taxes,  the  reduction  or  the  increase 
takes  effect  from  the  moment  of  his  uttering  in  Parlia- 
ment the  words  concerning  them.  This  practice  does 
not,  of  course,  prevent  speculation  in  respect  to  the  like- 
lihood of  a  particular  increase  or  reduction  being  made, 


siate- 
niinis- 
public 
ain  an 
id  tlie 
hod  of 

ir  it  is 
Eng- 
fiake  a 
ire  of 
ce  his 
;  year 
he  es- 
lanent 
th  the 
spart- 

ire  in 
year, 
!Cord- 
iU  be 
i\'^hen 
rthicli 
ce  or 
Tiodi- 
iriges 


^    ^  ^     THK    BUDGET   AND   PUBLIC   DEBTS         3,, 
to  Xiy  L'^Sr  "'°"  ""  ^'^"'•^  ^°°*'"«  in  respect 

government.  The  cS  ,r  T"'.* ''"  ™''"*^  ''y  the 
-vereign.  otherwise  he to^I""  "''°'^  '^  *'"'**''« 
n>oney  and  that  pXZT^Z' t' '''' r^'^ ''' 
grant  the  supply.     For  a  nr     !  "^^  °''  ''°«  "»* 

ment  to  granTsf.pplvlXlfer"?^  *°  "^"^  ^'''^^- 
The  budget  statemeT  ?    ''"  ^  anomalous. 

trodueed  whifrc'ntat Tn  •'•  "  ''"f """^  ^^*  ^  '"- 
of  the  change  in  the  Z  In^.  T""'^  ^'^'^  ''*«*^'"^"t 
sl-ould  these  be  necessTry  "" ''''"""  "'^t"  ^""ow. 

-tltTSf;; Xp^^^^^^^^^^^^  '-^  -«-^y  <iealt 

•nto  detail  in  respect  to  Z"  >  '  '^^'''  "'''  8° 
departments.  cCst  tutt.aT"''^"''^  °'  '''^  '^'^^'-^nt 
that  an  adminis^t  ^whTch  ff '"T"'  ^''  "^^^^^-d 
House  of  Commot  thitugh^l^^^^^^  '"  '"^^ 

'-.negatived,  does  not  netsl   ly'S  ""'""°"^ 

or  in  Canada,  they  gTone  toT  x"/  '"  ^''''  ^"ta-n 
the  second  to  the  Do^  c' *'°"'^  °^  Lords  and 
P^ctice  prevent  eith^rTt'b"  ^T'  ^^^titutional 
money  bill.  Thev  mlv  r  •  ^°'^"'  ^^^  «'tering  a 
amend  it.  ^  ""'^  ^''^^^  't  out,  but  they  cannot 

'he  items  properly  XaWetir^"  ™"'^  ""  '"'^^"'^- 
-^-    --s-ofm^rt^-^ear 


378 


ECONOMICS 


one  year  and  paid  in  another,  this  system,  although  con- 
ducing to  accuracy,  also  conduces  to  delay  in  closing 
the  accounts.  T- it  for  two  or  three  years  after  the  close 
of  a  particular  ;  ear  can  the  accounts  properly  belong- 
ing to  it  be  finally  closed. 

The  English  system,  on  the  other  hand,  provides  for 
all  payments  on  government  account  being  made  by  the 
Treasury  ihrough  the  Bank  of  England.  Only  those 
amounts  actually  paid  or  received  within  the  year  are 
taken  into  account  in  the  finances  of  the  year.  Thus, 
at  the  close  of  business  on  the  31st  of  March  m  each 
year,  the  exact  state  of  the  public  accounts  is  known 
and  is  generally  published  on  the  following  morning. 

838.  Public  debts.— IS! ationai  debts  are  a  product  of 
modem  financial  conditions.  Their  rise  is  coincident 
with  the  beginning  of  modern  discovery  and  the 
struggle  for  colonial  empires  which  ensued  upon  tlie 
discovery  of  America  and  of  the  Cape  route  to  the  East 
Indies.  Prior  to  that  epoch,  governments  borrowed 
money  from  individ  als  or  groups  of  individuals  ot 
their  own  or  of  other  nations.  But  the  loans  were  cus- 
tomarily made  on  the  personal  credit  of  the  sovereign 
since,  in  general,  there  was  no  distinction  between  the 
finances  of  the  public  administration  and  the  finances 
of  the  sovereign's  household. 

As  constitutional  government  developed  in  the  coun- 
tries of  Western  Europe,  the  finances  of  the  nation  were 
sharply  separated  from  the  finances  of  the  sovereign, 
and  loans  upon  the  general  credit  of  the  State  became 
possible.  The  general  credit  of  the  State  depended 
upon  the  stability  of  the  government,  upon  its  taxing 
powers,  and  upon  the  powers  of  the  people  to  sustam 
the  burden  of  any  taxes  which  might  be  imposed. 
The  power  to  lend  the  State  the  large  sums  of  mone; 


THE    BUDGKT    AND    ri'RUC    DKBTS         37!) 

which  it  wanted,  when  it  wanted  any  at  all,  could  only 
arise  whr  the  accumulation  of  cujiital  had  rendeieil 
possible  11  joneentiation  on  particular  occasions.  This 
condition  began  to  arise  toward  the  end  of  tlie  seven- 
teenth century,  with  the  increased  activity  of  foreign 
trade,  especially  with  the  countries  which  during  the  two 
preceding  centuries  had  come  to  be  exploited  by  Euro- 
pean traders. 

The  protection  and  encouragement  of  trade  by  means 
of  an  aggressive  colonial  policy  could  be  effected  only 
at  considerable  cost  and  the  cost  was  in  general  so  great 
that  to  seek  to  recover  it  by  means  of  general  taxation  of 
the  people  would  have  been  to  incite  the  people  to  re- 
bellion. The  cost  might  probably  have  been  recovered 
by  large  direct  taxes  upon  the  profits  of  external  trade, 
■but  to  impose  these  was  to  impede  the  growth  of  that 
trade  by  deterring  capital  from  entering  into  it.  The 
expedient  of  borrowing  from  the  same  class  of  persons 
whose  activities  rendered  the  expenditure  necessary 
was  therefore  obvious. 

839.  Early  government  Zoans.— The  train  of  events 
M  in  England  to  the  first  government  loan  from  the 
Bank  of  England,  the  governors  and  directors  of  which 
were  all  merchants,  and  to  similar  loans  from  the  Bank 
of  France.  These  loans  were  made  in  the  form  of  ad- 
vances upon  salable  and  transferrable  documents  of 
obligation  on  the  part  of  the  respective  governments  to 
pay  a  certain  annual  rate  of  interest  forever,  or  alterna- 
tively to  repay  the  principal  sum  with  interest,  the  option 
lying  with  the  government  which  incurred  the  obligation. 
We  have  here  the  gei-m  of  public  debts  in  any  con- 
siderable sense,  and  as  well  the  germs  of  the  money 
niarket  and  of  the  stock  market  alike.  For,  when  the 
Kovernment  stocks  were  taken  up  by  the  banks,  it  was 


380 


ECONOMICS 


(lone  in  general  for  the  purpose  either  of  selling  them 
themselves  or  trailing  or  horrowing  upon  the  security 
uliieli  they  represented. 

340.  Government  securities. — In  other  words,  the 
negotiation  of  a  government  loiin  by  a  banker  or  group 
of  bankers  did  not  diminish  their  credit,  unless  the  credit 
of  the  government  was  doubtful  or  unless  the  bankers 
had  made  a  doubtful  bargain.  They  could  count  upon 
being  always  able  to  dispose  of  a  portion  or  of  the 
whole  of  the  government  debt  should  they  require  to 
do  so.  A  market  was  thus  created  for  gc  -nment  se- 
curities because  every  one  knew  that  he  could  sell  these 
securities  whenever  he  wanted  to  do  so,  although  the 
price  which  he  could  obtain  for  them  might  be  expected 
to  vary  with  the  abundance  of  such  securities  in  the  mar- 
ket. Should  he  desire  to  hold  the  government  stock  lie 
would  receive  a  rate  of  interest  which  did  not  vary. 

Government  stock  thus  became  an  important  factor  in 
the  money  market,  because  of  its  ready  salability.  It 
might  be  held  with  advantage  temporarily,  because  in- 
terest was  always  accruing  upon  it  and  the  stock  might 
under  all  normal  conditions  of  the  market  be  immedi- 
ately converted  into  cash.  The  amount  of  it  which  the 
banks  held  might  thus  be  regarded  as  quite  equivalent, 
under  ordinary  conditions,  to  actual  coin  and  nearly 
equivalent  to  coin  under  any  conceivable  conditions. 
The  high  liquidity  of  government  stock  thus  rendered  a 
money  market  in  the  large  sense  possible,  and  even  in 
a  smaller  sense,  greatly  facilitated  monetary  dealings. 

The  frequent  purchase  and  sale  of  government  stock 
thus  led  to  similarly  frequent  transactions  in  the  stocks 
of  companies  issued  in  a  manner  similar  to  that  adopted 
by  the  government,  and  thus  led  to  the  development  of 
the  stock  market  which,  althouj.Th  it  must  be  regarded 


THK    BIDGKT   AM)    I'l'BLIC   DKHTS        3h1 
as  separate  from  the  money  market,  i.s.  nevertheless. 

arZ?'  Trr'  '7  "•     '''"'""  governments  a.i..,; 
various    meth<.,]s    of    issuing    loans.     The    principal 
methods  Hill  now  be  described.  principal 

J*!'  ^'r^-'^  /«"'*-l'"".led  or  permanent  loans 
are  usually   issued   in   large  amounts.     Thev  bear  a 

t  The'  Z!  7^r  "","■''  "'  ""'''•''^'  ««"••"  "''-'•ding 
.  the  state  of  the  market.     In.Ieed,  the  same  loan  may 

.e  purchase.1  at  many  .lifferent  %un..s.     Sometimes 

offe.ing  to  take  so  much  of  the  stock  at  a  certain  price 
A  loan  issued  by  a  government  of  higl,  standiii.  or 
issued  under  exceptional  conditions,  may  be  tendered 
in  «,e  aggregate,  for  several  times  the  amount  of  the 

Tliis  was  the  case  in  the  Japanese  loans  of  1905.    The 

largelj  to  the  pro-.Iapanese  enthusiasm  which  existed 
at  that  time,  and  partly  to  the  hostility  with  which  the 
anti-Semitic  riots  in  Russia  had  inspired  the  Jewish 
hnancial  circles  of  western  Europe. 

When  such  conditions  are  anticipated,  tenderers  in 
general  apply  for  more  stock  tlmn  they  expect  will  be 
allotted  to  them.  The  conditions  of  tl^  money  marked 
may  be  such  that  the  previous  issues  of  stock  by  the 

an(  that  further  issues  ,  ul.l  also  be  salable  only 
<m<ler  a  more  or  less  heavy  discount.  This  does  not 
necessarily  imply  a  .leficiency  in  credit  of  the  issuing 
government,  although  it  may  do  so. 

For  instance.  Russian  Government  stock  fell  ^U.^htly 
n  ter  each  important  defeat  of  the  Russian  armfes  in 
Manchuria  and  fell  heavily  during  the  revolutionary 


1 
1 


■;:.'<  "I 


38li 


lU'ONOMIfS 


movement  in  1903.  The  reasons  for  the  decline  of  the 
stock  were,  in  the  first  case,  tlie  likellliood  of  the  pro- 
longation of  the  war  or  the  cessation  of  it,  involving  the 
jiayment  of  a  large  indemnity  to  Japan  with  consequent 
increase  in  the  amount  of  government  del>t;  and  in 
the  second  case  to  the  diminished  stability  of  the  gov- 
ernment on  account  of  the  serious  character  of  interior 
disorder 

On  the  other  hand,  British  consols  or  consolidated 
stcK'ks  have  fallen,  not  because  of  the  diminished  credit 
of  Great  Britain,  but  because  of  the  conditions  of  tiiu 
money  market,  which  have  caused  an  advance  in  the  rate 
of  interest. 

842.  Market  declines  of  government  securities. — ^V 
discount  upon  government  stock  or  a  decline  of  it  in  tlit 
market  may  be  caused,  and  in  the  case  of  the  issues  of 
the  great  powers  usually  is  caused,  by  the  scarcity  of 
funds  seeking  investment  and  by  the  higher  rate  of  in- 
terest which  is  in  consequence  demanded  by  the  posses- 
sors of  those  funds.  Since  the  gcvernment  rate  of 
interest  is  fixed,  the  only  method  of  expressing  the 
advance  of  the  market  rate  of  interest  is  by  means  of  a 
discount  upon  the  principal  of  the  issue. 

But  government  loans  may  be  depreciated  for  an- 
other reason.  The  demand  for  such  issues,  althoufj;h 
not  invariable,  is,  nevertheless,  limited  because  at  any 
particular  moment  the  amount  of  ca^^ital  in  the  market 
for  investments  is  limited. 

343.  Effect  of  other  securities. — We  have  seen  ()). 
270)  that  the  money  market  is  divided  into  compart- 
ments, which,  though  not  absolutely  self-contained,  aie, 
nevertheless,  relatively  so,  partly  from  causes  whi<'li 
arise  'i  the  minds  of  owners  of  capital  and  partly  from 
legislative  causes.     Under  the  law  in  many  coimtries. 


THK   BLIKJKT   AM)    PlBI.IC 


DlCins        383 


ve    ments  ,„  such  seeuritic.  cannot  bo  invested  .^  a  ^ 
otiier.     ll„s  circumstance  increases  the  amount  JZl 
may  be  invested  in  first-class  securities  anTS.miniS 
the  amount  available  in  the  money  marke    forTnel 
investment.    The  rate  of  interest  fn  the  general  marke 
nil  be  mcreased  if.  for  any  reason.  funSare  d^ert'S 
f  om  general  to  special  use.     The  advance  of  the  «  n 
eral  rate  wll  prevent  the  flow  into  the  investment  ma!- 

ttisrrrihr''  sr"'"'  ^■'"'  "'.-"*  °"'-- 
.r^S:r-s^r:tr^-z^: 

Thus  the  mere  uicrease  in  the  amount  of  ffovernmen 

for  what  they  are  issued,  brings  about  a  rise  in  tiTratl 
o^^mterest  and  a  fall  in  the  capital  price  of  all  su  h  s  ocks 
inrolvrng  both  past  and  present  issues.  ' 

If  a  government  is  obliged  to  issue  stock  for  purposes 
of  war  or  for  the  purpose  of  interior  developmenrand 
f  these  .ssues  are  of  sufficient  magnitude  to  aTso  i,  the 

Jits  %K'  "^''"^  '"^■^^*'"-*  ■■"  ^--™t    e! 
cur.ties.  the  discount  upon  all  government  securities 

marS  o"n  "    r^  """""*  "'  *""*^  ^*"*  than 
market  could  readily  bear  at  that  time.    An  advance 


'.* 


the 


3H4 


KCO.NO.MICS 


in  the  rate  of  intcroit  wns  the  result,  thix  oilvuncc  cx- 
prcssitif^  itself  in  a  ht;ivier  discount  upon  all  govern- 
ment securities. 

If  in  consequence  of  national  peril  any  government 
increases  its  issues  largely  and  there  is  difflruity  in  ali- 
sorbing  these  issues  owing  to  the  state  of  the  s])ecial  and 
of  the  general  market,  the  result  must  Ite  heavier  dis- 
counting of  all  government  seairities  in  projiortion  to 
the  magnitude  of  the  operations.  T'hese  considerations 
apply  to  all  forms  of  government  issues  whether  thiy 
are  of  a  permanent  or  a  temporary  character. 

844.  Public  debts  of  various  countries.— The  puhlic 
debt  of  Great  Britain  is  very  extensively  held  by  bankers, 
not  under  compulsion  (excejjt  by  the  Bank  of  Englnnd 
to  a  certain  extent) ,  for  the  reasons  explained  above,  hut 
because  of  the  facility  of  manipulating  large  funds  w  'mIi 
the  public  debt  affords.  It  is  held  largely  by  the  van.  , 
government  departments  where  balances  of  funds  arc 
kept  for  special  purposes.  It  is  held  largely  by  officers 
of  the  law  courts  by  way  of  investment  of  funds  held  liy 
them  on  behalf  of  litigants,  wards  in  chancery  and  the 
like.  It  is  also  held  largely  by  trustees  and  as  the  fortune 
of  many  wealthy  families. 

The  Canadian  public  debt  is  held  principally  in  Great 
Britain.  It  is  on  the  list  of  stocks  in  which  trustees 
may  invest  without  personal  liability  and  its  fluctuatidiis 
are  subject  to  the  same  influences  as  those  which  affect 
other  stocks  of  a  like  character.  The  fact  that  the  lar- 
ger part  of  the  Canadian  debt  has  been  incurred  for 
productive  purposes — for  the  construction  of  caii'!- 
railways,  etc.— does  not  affect  its  value  in  the  man^.; 
That  value  depends  ui)on  the  general.credit  and  recog- 
nized stability  of  the  government  of  the  country,  u])nn 
its  taxing  power,  upon  the  assumed  ability  of  the  penjile ' 


rm-  ,n-,KiKT  .v,.  ..,„...■  „K«rs      ,ns 


to  niwt  thtir  lax  hunk. 


-     -"■»    •"Will 

'or  Canadian  swnritiV 

-pply  of  .nd.,..„.a„.,  for  capital  f" 


tlit- 


•"».  ii|«.ti  tlie  state 
•1.  OS  a  whole,  as 


of  the  market 
well  as  ufmn 
investment  in 


ric 


Keneral, 

i.ew  a  w ;;;;;;:;;:  ;;;'^;;"'*-'  state,  w„s  at  one  time 

iJritain.  Duri  ^  .c  OV  T"  '"•'"'•''"'"y  i"  <J'c«t 
was  low.  and  2r  ta  '  o'lri/'"^  '■"*'-'  "-«' 
-H-rous  eauses  of  wf:,:' L"!-  J  ;"- J'-'  '-- 
"«'<  one.  .  period  of  fi„„„eial  strai  „  kZZ  T"" 
itan  Ijonds  thus  fell  i„  v.l,.    i  ^'""•"pe.     Amer- 

i»K.  'Vf„,  1m  ■  fl>e.~n,l™,,i„„  „f  puMie  |,„||,|. 

Sre  "Money  and  nanking,  "  Vol  V7I  ,.f  il,.  \t 

C— 1— 25  '  "'  ""  -^'"DERN  Busixtss  text. 


386 


ECONOJIICS 


ing  for  redemption  of  the  principal.  The  principal  may 
be  subject  to  repayment  by  instalments — annual  or 
semi-annual — togfi},f ,  with  the  interest,  in  which  case 
the  stock  or  bond  is  called  a  . "  -minable  annuity,  to  dis- 
tinguish it  from  tie  permrin-  nt  annuity  of  the  funded 
debt.  Or  the  priuci^jiil  i-sny  be  subject  to  repayment 
in  instalments  or  in  one  payment,  either  at  given  periods 
or  at  one  period.  It  may  be  payable  by  lot  or  in  some 
rotation  or  the  whole  of  the  principal  debt  may  be  paid 
off  at  the  termination  of  the  period  agreed  upon. 

Terminable  annuities  are  an  important  feature  of  Brit- 
ish finance.  They  are  largely  adopted  to  supply 
means  of  dealing  with  sinking  funds,*  and  they  thus 
lead  to  gradual  -extinction  of  debt.  Large  blocks  of 
terminable  annuities  are  frequently  created  and  the 
funds  involved  are,  therefore,  removed  from  the  con- 
solidated fund  of  the  permanent  debt  (colloquially 
known  as  "consols"). 

Temporary  loans  may  be  effected  in  a  great  variety 
of  ways.  They  may  be  issued  as  Treasury  Bills  whicii 
are  practically  promissory  notes  drawn  by  the  govern- 
ment and  payable  for  large  round  sums  in  six  montlis, 
for  instance.  They  are  usually  drawn  in  anticipation 
of  receipts  from  taxes,  although  they  may  be  drawn  for 
the  purpose  of  providing  funds  urgently  required  at  a 
moment  when  the  market  for  permanent  loans  or  even 
for  terminable  annuities  is  not  favorable  for  the  issue 
of  such  securities.  Of  a  similar  character  are  the  Eng- 
lish issues  known  as  Exchequer  Bonds. 

846.  Conversion  and  redemption  of  public  debts.— 
The  conversion  of  a  public  debt  from  a  debt  ftt  one 
rate  of  interest  to  a  debt  at  a  lower  rate  has  occasionally 
been  accomplished  under  favorable  conditions  of  the 

'See  "Investment  and  Sp«*u!aUon,"  Vol.  IX  of  the  Modeen  Business  text. 


THE    BUDGKT    AM)    ITBLIC    DEBTS         387 

money  market,  and  by  means  of  financial  skill.  If  a 
.  ebt  ,s  contraeted  during  times  of  monetary  pressure 
.t  may  be  .ssued  at  the  rate  of  the  marked ^rt^t 
case  the  assue  will  be  made  at  par;  or  it  may  be  issued  at 
a  customary  or  fixed  rate  of  interest  and  at  a  discount 
which  bnngs  the  price  below  par 

In  the  former  case  it  may  be  expedient,  if  possible 
o  soon  as  the  monetary  stringency  ceases,  to  ende    «; 

replace  the  h.gh  interest  bearing  loan  by  another  loan 
at  a  lower  rate      This  process  is  known  as  conversion 

.e  tmie  of  issue,  the  period  at  which  conversion  would 

poss,blem,ght  be  more  extended  because  the  financial 

n  .thont.es  would  require  to  wait  until  the  market  rate 

0   interest    ell  to  the  point  or  below  the  point  of  the 

previously  fixed  rate. 

Conversion  can  only  be  effected  advantageously  at  a 
me  when  the  capital  value  of  a  stock  is  hi  Ji  andVL 
«.e  rate  of  interest  is  low.    When  Mr.  (afterward  Lord) 
RrV  r-v/r"',*''   '"   '^""^"ting  the  means   of  the 
Bntish  .National  Debt,  from  a  3  ->er  cent  stock  to  a 
21-2  per  cent  stock,  the  3  per  cents  were  above  par  and 
crcumstances  wholly  favored  the  operation.     As  Chan- 
cellor of  the  Exchequer,  he  utilized  his  authority  o.er 
he  various  public  offices  and  institutions  which  were 
la.-Se  fiduciary  holders  of  consols,  and  also  his  influence 
«ith  the  banks  to  efl'ect  the  conversion  of  the  debt  bv 
means  of  a  step  and  an  inducement.     The  step  wa's 
from  3  per  cent  to  2  3-4  per  cent  for  a  period  of  years 

h  automafc  reduction  to  2  1-2  per  cent  after  the 
lapse  of  this  period,  an.l  the  inducement  was  in  the  form 
ot  a  commission  to  the  bankers  who  aided  in  carrying 
«"t  the  scheme.    The  operation  cost  a  temporary  mone- 


:! 


388 


KCONO.MICS 


tary  sacrifice  to  the  exchequer,  and  a  suhsequent  annual 
saving  in  the  amount  of  the  annuity  necessary  to  dis- 
charge the  interest  of  the  debt. 

It  has  been  customary  in  Great  Britain  for  many 
years  to  provide  in  the  annual  budget  a  fixed  sum  for 
the  payment  of  interest  upon  the  national  debt.  Tills 
sum  has  generally  been  fixed  for  an  indeterminate  series 
of  years  at  a  sum  in  excess  of  the  requirements  of  tlie 
interest  charge  on  the  debt.  The  surplus  is  then  by 
law  devoted  to  redemjition  of  the  debt  automatically. 
So,  also,  is  any  general  surplus  of  the  finances  of  tlit 
year  from  whatever  source  it  may  be  derived. 

A  realized  surplus  must  be  devoted  to  the  redemptidii 
of  debt.  A  general  natiojial  balance  cannot,  tberefoii.', 
be  carried  forward.  In  addition  to  automatic  measures 
of  this  kind,  there  are  frequent  reductions  of  del  it 
through  the  falling  in  of  terminable  annuities,  and  some- 
times an  explicit  amount  is  set  aside  for  the  dischaifie 
of  a  particular  form  of  debt  or  for  the  purchase  of  the 
public  funds. 

347.  Industrial  activity  of  the  State. — The  State  iiiny 
undertake  to  render  certain  public  services  or  may  un- 
dertake certain  industries.  In  either  case  it  may  c- 
tablish  a  legal  monopoly  or  it  may  permit  competitinii. 

I^egal  monopolies  established  by  the  State  are  com- 
mon in  Europe.  The  tobacco  monopoly  of  Austria. 
the  vodka  monopoly  of  Russia,  the  match  monopoly  of 
France  are  examples.  Where  substitutes  for  the 
monopolized  commodities  cannot  be  procured  or  cannot 
readily  be  procured,  the  monopoly  may  be  effectivelv 
maintained  by  means  of  the  exercise  of  the  j)owers  of 
the  State  and  the  exaction  of  heavy  penalties  foi-  in- 
fringement. 

These  monopolies  are  sometimes  established  for  tl; 


THE    BUDGET    AM,    PUBLIC    DEBTS         389 

morn^^r"^,  -ntrolling  public  consumption  of  the 
nmnopohzed  commodity,  as  in  the  case  of  the  Russ  an 
vodka  monopoly.  „nd  son.etimes  for  the  purpo  e    J 

rS  •  '""'*"'"  "■''*^*''^''-  "'  ""t  tl'e  state  is 

t^  -Tni  '^'"'^  '"*°  P'-onii-'ence  chiefly  thronffh 

the  analogous  case  of  municipal  enterprise.  ^ 

roL   liV      '"■"'""  """•^""^  '•>'  ««^  St«te  or  where  the 

The  conditions  of  universality  and  equality  some 
t"..es  ex,,t  m  the  case  of  bridges  and  of  ferr  es      Thev 

;;;;i;:eik"^T*"'^t*^""'^^^^^°^^*^^'^^'S 

t  le  like.     The  maintenance  of  the  services  renre 

sented  by  these  is  therefore  usuallv.  although  no   i  n-ar  " 

ay    defrayed  out  of  the  general  revenues        ^  he 

e  of  commod.t.es  which  are  not  in  universal  use  or 

cl ,  bemg  m  universal  use,  are  used  in  varying  quan- 

Caph  irr,  '7'^' " '"  *'"^  '^^^^  "^  *'-  p-'  'ffi- 

lelves  to  «    ^^    "'  ""''"^■^'  "^  "''■■^'^  P-P'«  --il 

exercise  of  the  monopoly  by  the  State,  in  tlie  same  man 

ner  as  it  would  be  exercispri  I„r  o  „  •    V  , 

very  strong.  ^  '^  P"^***"  monopolist,  are 

318.  Responsibilities  of  State  industrial  enterprises  - 
Tl.e  exercise  of  any  monopoly,  whether  by  the  I  ate 
he  mi:     rrT^'  "''J^'^*  *"  certain-limitati  n 

5.Trl  f       /  '"""opolv.   the   price  which   he   will 

charge  for  it  cannot  be  the  highest  price,  but  must  be 


ii 

I* 


3!)0 


ECOXOAIICS 


the  price  which  will  result  in  a  demand  which  will  give 
the  larj^est  amount  of  net  profit.  Since  the  State  may 
he  prevented  hy  public  opinion  ffoni  obtaining  the  laij;- 
est  amount  of  net  profit,  the  price  charged  by  it  for  tlie 
service  or  for  the  commodity  may  not  in  practice  be  de- 
termined with  that  in  view.  It  may,  indeed,  be  so  low 
a  price  that  the  cost  of  the  service  is  not  met  by  it.  Tliis 
is  the  case  in  the  British  State  Telegraph  System.  Tiic 
price  of  transmission  of  telegrams  was  iixed  when  tlie 
government  took  over  the  business  of  the  companies  at 
the  low  sum  of  sixpence  for  twelve  words,  with  an  addi- 
tional charge  of  a  halfpenny  foi  each  additional  word. 
It  was  supposed  that  the  revenue  from  the  telegraph 
service  at  so  low  a  rate  would  suffice  to  pay  the  cost  of 
the  service.  Experience  has  shown  that  the  price  is  tnn 
low  and  that  it  does  not  meet  the  cost.  The  telegrapli 
service  has  thus  been  maintained  to  some  extent  at  tlie 
cost  of  the  public.  Other  points  in  connection  with  tlie 
difficulty  of  maintaining  the  legal  monopoly  at  cost  are 
discussed  elsewhere  (p.  157). 

On  political  or  humanitarian  grounds  it  may  be  ex- 
pedient for  the  State  to  render  scTvices  without  explicit- 
ly charging  for  them  to  the  people  to  whom  they  are 
rendered;  but  fairness  to  the  general  taxpayer  demands 
that  such  gratuitous  services  should  be  confined  to  tliose 
which  are  in  their  nature  universally  available.  Fair- 
ness also  demands  that  the  commodities  produced  by  the 
State  should  be  sut.  >lied  at  a  price  to  those  who  want 
them,  such  as  they  would  have  to  pay  to  any  private 
concern. 

The  extent  to  which  the  State  may  advantageously 
engage  in  industrial  enterprise  must  vary  with  varj-ing  | 
conditions.     Where   t!,e   credit    of   the    State    is   !ii 
enough  to  enable  it  to  borrow  capital  at  a  lower  rate  of 


rUE    BUDGET    AND    PUBLIC    DEBTS         391 

enee  between  the  amount  of  dividend  which  the  private 

pm.,e  company,     m,  St.,e  „1gh,  „  „i;;7„"  t 
*  *"  ?/°-.,  "^"^  °Pi"i™  '"iBht  demand  „r;,h 


41 
'if 


CHAPTER   V 


LOCAL   AND    MLMflPAL    FINANCE 


349.  Local  government  in  its  economic  aspects.— Far 
present  purposes,  local  government  may  be  divided  into 
two  sections — State  or  provincial  government,  and  mu- 
nicipal or  city  government.  The  powers  of  administer- 
ing revenue  and  expenditure  possessed  by  the  State  or 
provincial  government  depend  upon  its  relation  to  the 
central  or  national  government.  In  the  United  States 
tlie  several  states  possess  the  permanent  power;  that  is. 
the  central  government  possesses  the  powers  with  which 
it  is  endowed  by  the  constitution,  and  the  several  states 
possess,  each  within  its  own  territory,  all  other  powers. 

In  Canada,  the  constitutional  arrangement  is  exact!} 
the  reverse.  The  provinces  are  explicitly  endowed  with 
certain  powers  by  the  British  North  America  Act  ami 
subsequent  acts  amending  it,  and  the  Dominion  Parlia- 
ment or  central  authority  is  endowed  with  all  other  pow- 
ers in  so  for  as  such  powers  are  consistent  with  the  Act 
mentioned. 

In  the  United  States,  the  national  revenue  is  thus 
practically  confined  to  indirect  taxation  because  powers 
of  direct  taxation  have  been  retainr d  by  the  several  states. 
In  Canada,  the  Dominion  Parliament  derives  the  na- 
tional revenue  from  customs  and  excise  and  from  the 
lands  which  remain  at  the  disposition  of  the  Dominion 
as  distinguished  from  the  provincial  governments:  but 
it  would  appear  that  the  Dominion  Parliament  might, 

092 


LOCAL   AND   .MUXUIpa,,    FINANCE  393 

if  it  elected  to  do  so,  impose  direct  taxation.    The  prov- 
es cam,ot,  however,  impose  any  customs  or  excl 
ut,es,  although  they  have  imposed  export  duties  uZ 
loffs  and  other  commodities.  '  amies  upon 

350.  Provincial  taxation  in  Canada.~ln  provincial 

Pl^  ation  of  the  other  provinces  bears  to  the  province 
of  Quebec    winch  ,s  taken  as  the  unit  of  calculatb^ 

.i-e.pendin,body.^%rirclS^^^^^^^^^^ 

assauTtI  e  d  ffi     U  .     """""^  "^  "''^  ^"''^''^y-  «»d  tlse 
Jssauits  are  difficult  to  res  st.    The  senaratjAn  «c  « 

"siay,  the  sale  of  timber  lands  and  the  grantinj^  nf 

furVr.'  °''"  '"^''^'  -«-d  t°  -eet  th  expendi 
fures  of  the  respective  provinces.     The  growth  of  de 

on  ot  public  works-roads,  bridges  and  the  like-»nH 
t  e  enormous  growth  of  the  demand  for  expendh^  f"^ 
educational  purposes,  brought  about  the  ^^^^ 

eri  ed  bv  the  H  -  "5  '  ''"'"'"'^  "'  °"*''"°  ^^  '^hara- 
1  1  f^  ^  diminution  of  the  revenue  from  the  timber 
™    a^the  large  timber  of  the  province  came  to  be  ex 


394 


KCONOMICS 


Under  these  circumstances  the  provincial  government 
imposed,  to  begin  with,  succession  duties,  and  followed 
these  by  taxes  upon  corporations — banks,  trust  compa- 
nies, telephone  companies,  insurance  companies  and  the 
like.  The  system  which  has  been  evolved  is  a  highly 
complicat  -d  ot.';,  each  different  kind  of  company  being 
assessed  fov  taxes  in  a  different  manner.  At  present 
the  taxes,  as  a  rule,  are  not  heavy,  and  for  that  reason 
they  have  not  excited  any  serious  antagonism;  but  the 
complexity  of  the  system  and  the  impossibility  of  com- 
paring the  burdens  which  are  borne  by  different  cate- 
gories of  tax-paying  corporations,  contain  the  germs  of 
future  difficulties. 

331.  Corporation  tax  an  income  tar.— The  effect  of 
the  imposition  of  the  taxes  upon  corporations  irrespec- 
tive of  the  method  by  which  they  are  assessed,  is  a  tax 
upon  the  income  of  joint  stock  companies;  but  under 
the  method  of  assessment  the  revenue  does  not  increase 
as  that  income  increases,  because  the  taxes  are,  as  a  rule, 
imposed  upon  the  capital  of  the  companies  in  some  form 
or  another — on  railway  per  mile  of  line,  on  banks  upon 
their  capital  and  the  like.  The  absence  of  automatic 
elasticity  of  the  revenue  is  a  serious  drawback  to  provin- 
cial finance  because  more  or  less  irritating  changes  will 
have  to  made  in  order  to  provide  for  an  increasing  ex- 
penditure. 

When  Confederation  of  the  Canadian  provinces  came 
into  effect  in  1867,  the  Dominion  administration  took 
over  all  the  existing  public  works  of  the  provinces,  tak- 
ing over  at  the  same  time  the  public  debts  of  the  prov- 
inces. These  public  works  consisted  chiefly  of  canals, 
dock<!,  lighthouses  and  the  like.  Until  the  period  of 
Confederation,  the  provinces  had  not  constructed  any 


LOCAL    AND   AIUMtlPAL    FINANCE  39a 

railways,  although  they  had  granted  subsidies  to  rail- 
way companies  both  i..  land  and  in  money. 

Ihe  Provinee  of  Ontario  has  more  recently  con- 
rueted  a  hne  which  extends  from  the  Canadian  X 
chc  and  Grand  Trunk  Railways  at  North  Bay  into 
"orthern  Ontario.     This  line,  known  as  the  Temi  ka- 
".".g  and  Xorthem  Ontario  Railway,  was  intendedTr^;. 
...ally  to  iachtate  the  transportation  of  lumber  from  thft 
.•y,n  and  to  facilitate,  also,  its  colonization.  a«  thT  tim! 
ic     areas  became  gradually  available  for  settlement 
le  d.scovenes  of  silver  and  gold  in  the  Cobalt.  Porcu- 
I'...e.  Gowganda  and  other  districts  gave  unexpected 
opportun.t.es  to  the  railway.    The  line  fvhieh  is  operated 
by  a  commission  appointed  by  the  Ontario  government 
has   hus  been  a  financially  successful  undertaking     The 
capital  for  the  consti-uetion  of  the  line  was  raised  in  Lon- 
(Ion  on  the  general  credit  of  the  province 

332    Vtilhing  prison  Mor.-The  Province  of  On- 
tario has  embarked  upon  an  experiment  in  prison  admin- 
strafon  wluch  has  important  economic  aspects.    PrTson 
arms  have  been  established  in  which  prisoners  who  have 
en  entenced  for  misdemeanors  for  periods  of  not  more 
Hum  two  years  are  set  to  outdoor  instead  of  indoor  labor 
Ihey  are  occupied  in  building  the  necessary  buildings' 
making  roads  and  bridges,  in  cultivation,  and  in  tte 

st-tutions.  The  advantage  from  the  point  of  view  of 
n^rhl/^""'  ''  very  manifest,  but  the  experiment  has 

u  tif!  ;  ;7™^'-r  '"'-.'^  ^"ffi«'-t  Wth  of  time  to 
justifj  a  judgment  upon  its  cost.    Experience  elsewhere 

as  shown  that  the  system  possesses 'great  advanlag 

ot  simple  confinement,  owing  to  the  inefficiency  of  forced 
Pnson  labor.    It  is  obvious  that  in  so  far  as  the  prison 


390 


ECONOMICS 


farm  produces  a  surplus  overwnd  above  the  requirements 
of  the  prisoners  on  the  farm,  it  competes  in  the  market 
with  the  produce  of  tlic  free  fanners  who  contribute  to 
its  maintenance.  Even  if  the  surphis  produce  is  used 
in  other  governmental  institutions,  it  competes  with  the 
produce  of  the  free  farmers,  who  otherwise  would  con- 
tract for  supplies  for  them.  The  question  of  prison  labor 
is,  however,  insoluble  on  exclusively  economic  grounds. 

853.  Municipnl  finance. — On  the  continent  of  Europe 
a  large  part  of  the  revenue  of  municipalities  is  derived 
from  market  tolls  and  from  octrois  or  municipal  import 
duties  collected  at  the  entrances  to  cities.  The  latter 
form  of  revenue  is  impracticable  excepting  where  the 
cities  are  walled  and  where  entrance  to  them  can  be  regu- 
lated at  a  comparatively  small  number  of  barriers.  In 
Great  Britain,  market  tolls  form  a  considerable  part  ol 
the  revenue  of  some  of  the  towns,  but  the  major  part  of 
the  revenue  is  derived  from  taxes  upon  real  property. 
These  taxes  are  imposed  not  upon  the  estimated  value  of 
the  property,  as  is  customary  in  Canada  and  the  United 
States,  but  upon  the  actual  or  estimated  rental.  Tliis  | 
system  has  the  result  that  property  which  is  not 
actual  use  is  not  assessed  for  property  tax;  it  also  lias 
the  result  that  frequent  revaluation  of  real  property 
not  necessary,  the  amount  of  rent  being  known,  the  tax 
follows  automatically. 

On  the  continent  of  Europe  and  in  Great  Britain,  ex- 
emptions from  taxation  are  rare.  National  and  munici- 
pal property  is  exempt  from  municipal  taxation,  but 
otherwise  all  occupied  premises  are  taxed. 

The  system  of  municipal  taxation  in  vogue  in  Canada 
and  the  United  States  involves  generally  an  annual  valu- 
ation of  real  property  in  order  to  assess  it  for  taxation 
purposes,  the  tax  being  levied  upon  its  estimated  value 


LOCAL   AND   MUNICIPAL   FINANCE  397 

whether  it  i5  occupied  or  not.    This  system  has  arisen 

bc-cause  o   the  prevalence  of  the  practic^  of  holding   3 

,    "'""•>  "'('an  areas  for  speeulative  purposes.     It  w^^ 

to  ell  ,t  or  to  occui,y  -t.  \\'hile  after  the  eollapse  of 
«.-al  estate  booms.  land  is  often  sold  in  quantity  for  tlxi 
.0  effect  of  the  system  ,I,k>s  not  appear  to  ha4  S 
the  d,s«,ura«ement  of  speculation,  eicept  b  •  weak  hold- 
ers of  sn.aU  lots.  Strong  holders  have  l.een  able  to  pay 
■e  taxes  out  of  other  sources  of  income  or  to  born.w 
tbe  amount  necessary  to  pay  then,  and  hold  the  land  ^ 
an  anticipated  advance  in  price. 

3.54.  r«.r  ej,emptio„.~ln  the  Canadian  cities  and 
towns  the  area  of  exempted  land  and  the  vafue  of  ex 
empted  buddmgs  is  very  great.    All  ecclesiast  cal  Ip- 

than  ecclesiastical  purposes,  is  exempt;   so.  also   is  all 
3^0  h,"t™'"""'P"'''°^^'-'''^*herit'ispos 
Son  0/  tT      ."'■    ''  ""'''''  '-''t^tions.    The  compe- 
Itol        "    f"  "'1'"'  ''''^  °"«  ""°*''-'-  has  aL 
tor  a  period  of  years,  as  well  as  to  the  payment  of 

etmntio:  ^^'•'^'"/-^---  The  aggregL  of  Ll 
exemptions  is  great  enough  to  make  a  material  differ- 
ence upon  the  tax  rate. 

3.55   Municipal  expenses  dependent  upon  age  of  cit„. 
Canada  t:"  "'  *'%''*["  '"  '""^  U"''*^^  States  an 

they  often  do  large  spaces  unoccupied  or  only  partially 
occupied,  have  together  resulted  in  exceedingfy  Tr^e 

nor  hem  towns  causes  the  streets  to  deteriorate  rapidly, 
no  street  nak.ng  material  which  will  resist  the  effects 


308 


ECONOMICS 


of  the  jjreat  range  of  teiiiptratiire  l)etwcen  summer  a 
winter,  and  of  sudden  ehanges  of  temperature,  havi 
yet  been  diseovered. 

When  conii)arinff  the  expenditures  of  different  citi 
and  espeeially  tlie  expenditures  of  cities  in  America  w 
iiiose  of  Kurope,  the  difference  in  the  iiffc  of  cities  mi 
he  taken  into  account.  Mudi  municipal  expenditure 
of  a  permanent  character.  There  are  cities  in  Kurn 
whose  civic  biiildin|?s  were  erected  in  tlie  middle  aj 
and  whose  Hridffes,  boulevards  and  parks  have  all  hi 
provided  by  previous  ^fenerations.  In  America  all  tin 
have  been  provided  out  of  taxation  almost  within  t 
current  generation  for  a  great  many  large  cities  a 
for  all  cities  well  within  one  century. 

356.  Municipal  debts.— The  debts  of  the  municipii 
ties  in  Canada  and  the  Unite<I  States  are  thus  very  lai> 
and  they  are,  moreover,  increasing  rapidly.  The  piili 
continually  demands  that  the  municipality  should  uiuli 
take  fresh  civic  duties,  that  it  siiould  undertake  t 
administration  of  street  railways,  electric  lighting,  tl 
provision  of  electrical  power  and  the  like.  The  tot 
of  municipal  obligations  is  thus  steadily  mounting,  ai 
municipal  finances  are  not  always  skilfully  manaj;c 
In  Europe,  although  compared  with  the  population  ( 
the  cities  in  America,  the  municipalities  are  less  heavil 
burdened  with  duties,  municipal  offices  are  customiiril 
filled  by  well-paid  professional  persons.  In  the  T'liitc 
States  and  in  Canada  there  is  a  disposition  to  unckrpa 
civic  officials,  with  the  result  that  the  services  are  of'ti' 
less  competently  rendered  than  are  similar  services  i 
private  employment.  The  duties  imposed  upon  miinici 
pal  councillors  are  also  so  burdensome  that  it  is  oftei 
difficult  to  obtain  competent  persons  to  undertake  tln-ni 
and  they  are  frequently  left  to  be  undertaken  by  inferioi 


LOCAL   AND   MVSUiVM.    MnaNc  ,.;  .,„„ 

types  of  lwal,,olitk,„„.s.    The  result  „f  H, 
I    Imvc  fro„,  ti„r,o  t     e  I.       '  """""''"'  "^"'"'"'^  "'"''• 

^.■Sc:u;^3:::r;;:';;/ ^■^/"""'— as 

value,  while  the  system  ,„  ,         '^"'""  "'  rc;.i    ,  annual 

^«tesanai,;cr:^rs:'^:':;s'';^V'''"' 

of  estimated  total  value     In  t  „    •  '      '  *'"""'"" 

tion  of  .iiseri„,inati„„  tt,u  ,  .""'";  r''  *''^'  ''"'■''■ 

"'•tneee«arily„n   !     ntho       f    "':    "'"'  '"''''""«''  •'"^"' 
"lly  arrived  a    l.v  ah  i^i    .,■::•  *  ^'  •"!"'/"'-  ^  '- 

'-1  to  the  estimate  iVf,;;;;;'';'^'''  ^"'r-  "^  "- 

exist  upon  the  land  '"'i^linKs  where  sueh 

*i"n.    In  some  of  ttc^i   \wl''''"'  'T"!':  '"'  *"^''- 
,  ''""l  are  beinir  h,.|,    f  ■      ".n.suierahle  areas  of 

Ject  the  eliminaln  of      ,Ss'""r^  ''"•  *'"^'"  "»" 

^  from  the  assessment  rolls    a    i^,  ""''   "'!I!'-"^ements 

larger  portion  or  of  «II  H  '"'position  of  the 

estfrnateVvZe  of  1  nd     AnT"';'"'*' ^-^'^^^  ">'""  "- 

wupon  income  ^  "^e-  jle  tax  will  he  a  tax  upon  capital 
in  qL^tion      iMr"'  '^"^  "!'"^'-  ^™  *'•«"  "'e  land 

to  hold  the  land  they  will  in  all  likelihood  do 


m 


-100 


ECONOMICS 


so.  If  the  holders  are  weak  fiiiancially  or  are  pessimis- 
tic as  to  the  eflFect  of  special  taxation  upon  the  market, 
they  will  throw  their  land  on  the  market.  Should  the 
latter  class  be  numerous  and  should  the  land  owned  by 
them  represent  a  considerable  proportion  of  the  unused 
land  a  fail  in  the  price  of  such  would  be  inevitable.  As 
the  price  falls,  so  must  the  yield  of  taxes,  and  as  tiie 
yield  falls  the  tax  rate  must  be  increased  in  order  that 
the  revenue  may  be  maintained.  The  idea  seems  to  be 
prevalent  that  under  the  pressure  of  increased  taxation, 
unused  land  will  be  forced  into  use,  but  land  cannot  be 
used  unless  there  is  demand  for  it,  and  demand  cannot 
be  forced,  although  it  may  sometimes  be  induced  by  a 
fall  of  price. 

Where  land  is  used,  the  taxation  will  fall  upon  the 
user  and  will  be  paid  out  of  the  gross  rent.    Under  con- 
ditions of  mobility  of  property  in  land,  the  net  rent  re- 
ceivable wiU  detei-mine  the  price  of  it,  estimated  future 
increments  of  value  being  discounted.    Excessive  taxa- 
tion must  in  this  case  also  depress  the  price  of  the  land. 
The  increase  of  taxation  upon  land  and  the  elimination 
of  improvements  from  the  assessment  rolls  may  appear 
to  induce  improvements,  but  improvements  cannot  be 
effected  by  this  negative  means.    They  can  only  arise 
from  demand;  and  if  they  do  so  arise,  the  tax  will  fall 
upon  them  irrespective  of  nominal  elimination.    Jlean- 
while,  however,  a  disturbance  of  the  economic  equilibrium 
of  the  area  must  take  place.    The  magnitude  of  the  ef- 
fects described  must  depend  upon  the  magnitude  of  the 
tax.     It  should  also  be  observed  that  the  ostensible 
elimination  of  buildings  and  other  improvements  from 
the  assessment  rolls  may  affect  municipal  credit,  even 
if  it  only  apparently  diminishes  the  security  for  miumi 
pal  loans. 


LOCAL    AND    MUNICIPAL    KINAXCK  HH 

358 Municipal  admini»tration.~Tlw  policy  of  ce„ 
raLzahon.  which  began  with  the  gradual  ex  Lto^  If 
he  mdependence  of  the  medieval  towns,  waf  "r Ij  „, 

nr^r'  "'  ^^"'■"P^  "^  '*^  hig'-  t  point  the 
eighteenth  century,  France  leading  in  sEbordinlti  u! 
local  to  national  interests.    The  English  system  of  i     1 

z^zr^ri  rrT  ^^^^^^^ 

model.  Unt  1  the  date  of  the  reform  of  the  municipal 
c  rporafons  m  1835.  there  was  a  considerabira  Zn 
of  local  autonomy.  The  powers  retained  by  the  Engh  h 
to,vns  were  not.  however,  always  wisely  exercised  Ihe 
appears  to  have  been  a  considerabk  amount  of  civ  c 
corruption  and  in  general,  there  was  a  parochial  sp  riT 

fn  tb    t  the  "nion  between  Great  Britain  and  Ireland 

a  pohcy  of  centrab.at.on  which,  however,  was  not  ear- 
ned so  far  as  was  the  case  in  France.  T)  -ivic  eola- 
tions were  shorn  of  much  of  their  ancient  powersTnd 
pISw "*  ""^'^^^^^  ^"'^j-*'^'^  ^°  the'coJtrorof 
This  process  had  two  results.  It  overloaded  Parlia- 
ment with  local  affairs,  and  it  diminished  civic  pride  and 

Z  ?  ^^^ntu^JIy  to  delegation  of  the  powers  of  Par- 
mment  w.thm  certain  hmits  to  local  aufborities.  Th L 
change  endowal  the  cities  and  towns  with,  in  some  re 

although  they  remained  subject  to  the  control  of  Par 
S  I  „     ,""  r;™'-'  "-^-'-^t-tion  through  th   r 

C— I— 26 


402 


ECONOMICS 


359.  Local  Government  Board  in  England. — The 
local  Government  Board  is  a  board  only  in  name.  The 
political  head  of  the  department  is  usually  a  cabinet 
minister;  the  effective  functionaries  are  permanent  civil 
servants.  The  function  of  the  Board  is  to  supervise  local 
administration,  to  make  inquiry  into  the  nature  of  civic 
expenditures  whether  by  Town  Councils  or  by  Boards 
of  Guardians  (Poor  Law  boards)  as  occasion  arises. 
Municipal  loans  are  sanctioned  by  the  Board,  often  after 
a  local  inquiry  as  to  the  need  of  the  loan  conducted 
publicly  by  an  official  of  the  Board.  These  loans  are 
made  by  the  Commissioners  f  the  National  Debt,  on 
terms  which  simply  defray  the  cost  of  the  loan,  whi-h 
is  effected  by  means,  not  of  the  c  vie,  but  of  the  national 
credit.  Periods  for  the  amortization  of  the  loan  are 
arranged  according  to  the  purpose  for  which  the  loan 
is  made. 

Under  this  system,  municipalities  are  not  permitted 
to  raise  money  except  for  essential  services,  until  they 
are  able  to  show  that  these  services  are  fully  rendered. 
Thus,  municipalities  were  prevented  from  establishing 
telephone  services  on  their  own  account  because  their 
system  of  sewerage  or  their  water  supply  was  inade- 
quate. 

860.  Local  independent  action.  —  This  system  of 
checks  and  balances  notvnthstanding,  the  English  and 
Scottish  cities  embarked  in  many  enterprises  in  conse- 
quence of  the  facilities  which  they  enjoyed  of  raising 
money  at  low  rates.  Some  of  them,  owing  to  the  posses 
sion  of  ancient  funds  (as  is  the  case  of  Glasgow,  where, 
although  the  city  had  a  civic  debt,  it  had  also  an  en- 
dowment known  as  the  Common  Good) ,  or  owing  to  the 
possession  of  exceptional  powers  under  special  Acts  of 
Parliament,  were  able  to  raise  funds  otherwise  than 


LOCAL   AND   MUM^.i.AL   FINANCE  W3 

through  the  Local  Government  Boards.'  By  means  of 
such  special  powers,  some  of  the  cities  received  money 
on  deposit,  paying  a  rate  of  interest  slightly  in  excess 
of  the  rate  allowed  by  the  banks  and  some  of  them 
issued  promissory  notes  at  short  dates.  These  uotes 
usually  for  amount  of  ^100.000  ($486,666).  were  sohl 
in  the  money  market,  occasionally  being  sold  abroad. 

361  Mnmapal  enter prhe. -Thtse  facilities,  taken 
toge  her.  enabled  the  cities  to  build  docks  (as  at  Liver- 
pool) to  engage  in  the  construction  of  canals  (as  at 
xManchester).  to  acquire  and  operate  water  works,  gas 
works,  electric  lighting  plants,  tramways  (street  rail- 
ways), water  works  for  hydraulic  power  at  high  pres- 
sure, works  for  the  supply  of  pneumatic  power,  tele- 
phone systems,  and  the  like. 

These  enterprises  were  established  from  various  mo- 
tives.   Sometimes  the  services  had  been  rendered  by  com- 
panies which  held  franchises  for  short  periods  only  with 
doubtful  prospects  of  renewal.     Under  such  circum- 
stances. It  was  impossible  for  the  companies  to  secure 
capital  sufficient  for  needed  extensions  owing  to  the  pos- 
sibihty  of  practical  confiscation  at  the  end  of  a  short 
penod.     Sometimes  the  revenue  from  the  sendees  was 
msufficient  to  attract  the  necessary  amount  of  capital 
even  where  the  franchises  were  indeterminate.    In  such 
cases  the  city  was  practically  obliged  to  undertake  the 
services  on  its  own  account.    Sometimes  the  franchises 
were  a  source  of  considerable  profit,  and  it  appeared  to 
the  municipal  authorities  that  this  profit  might  be  earned 
by  a  municipal  department  and  might  be  employed  in 
the  reduction  of  general  civic  taxes.    Occasionally,  mu- 
nicipal services  were  undertaken  out  of  enthusiasm  for 

'  There  are  three  such  board,,  one  fur  ™oh  ..f  the  three  kingdoms. 


IK'l 


404 


ECONOMICS 


municipal  ownership.    This  motive,  however,  arose  at  a 

late  stage. 

362.  Increased  municipal  indebtedness  results.— Ttu: 
consequence  of  the  embarkation  of  many  municipalities, 
practically  simultaneously,  in  enterprises  of  various 
kinds,  each  involving  the  investment  of  large  sums,  was 
a  great  increase  in  municipal  indebtedness.  Municipal 
securities  became  a  drug  in  the  market,  and  the  addition 
to  the  national  borrowing  on  municipal  account  con- 
tributed, with  the  general  advance  in  the  rate  of  inter- 
est, to  depress  the  price  of  national  securities.  The  de- 
velopment of  municipal  enterprise  was  thus  checked; 
and  ihe  margin  of  difference  between  the  rate  of  interest 
which  the  municipality  was  obliged  to  pay  for  the 
capital  borrowed  by  it,  and  the  rate  of  interest  or  divi- 
dend yielded  by  investment  in  private  enterprises  dimin- 
ished. 

Meanwhile  the  difficulties  inherent  in  all  public  en- 
terprises developed.  The  people  who  availed  them- 
selves of  the  municipal  services  began  to  clamor  for  a 
rediiction  of  the  prices  of  the  services  rendered  by  the 
municipality  under  conditions  of  legal  monopoly.  In 
some  cases  the  prices  were  temporarily  or  permanently 
reduced  and  the  profits  dwindled  or  disappeared ;  in  some, 
the  prices  were  maintained  and  the  profits  used  to  dimin- 
ish the  rates;  in  other  cases,  the  profits  were  too  slender 
to  excite  interest. 

863.  Municipal  enterprise  in  England  not  wholly  a 
success.— The  general  provisional  conclusion  from  the 
available  evidence  upon  municipal  enterprise  in  Great 
Britain  to  be  drawn  is  that,  in  that  country,  under  the 
most  favorable  circumstances,  municipal  enterprise  is  a 
qualified  financial  success.  It  has  not  resulted  in  mate- 
rial diminution  of  the  local  rates,  but  it  has  undoubtedly 


LOCAL   AND    MUMCIPAL    FINANCE  405 

contributed  to  the  revival  of  civic  spirit  and  to  greatly 
increased  interest  in  civic  affairs. 

In  its  more  purely  economic  aspects,  the  chief  diffi- 
culties which  huxe  arisen  are  tliese:  reluctance  to  re- 
munerate technical  ability  to  a  sufficient  extent  to  pro- 
cure competent  management;  reluctance  to  provide  a 
sufficient  amount  for  depreciation  of  plant;  and  a  ten- 
dency to  transfer  to  departments  which  are  exclusively 
spending  departments  (such  as  the  department  con- 
cerned with  tlie  maint-nanee  of  streets),  charges  which 
properly  have  been  incurred  by  earning  departments,  in 
order  to  make  the  latter  show  a  profit.  Tlie  influence  of 
the  employees  of  the  civic  enterprises,  who  are  also  voters 
on  the  municipal  list,  has  occasioimlly  been  aggressively 
exerted  m  order  to  procure  for  themselves  benefits  at  the 
public  expense. 

364.  /„  the  United  Stntes.-ln  the  United  States 
the  cties  have  not  been  subjected  to  the  centralizing  in- 
fluences which  we  have  recognized  as  characterizing  the 
relations  between  the  cities  and  the  national  government 
both  in  P'rance  and  in  Great  Britain.  The  cities  of  the 
L  nited  States  have  retained  much  of  the  independence 
which  was  possessed  by  the  English  cities  at  the  period 
of  the  Declaration  of  Independence  of  the  American 
Colonies. 

The  civic  independence  in  the  American  colonies  was 
however,  used  by  the  American  cities  in  a  manner  very 
similar  to  that  in  which  the  English  cities  used  theiV 
quasi-mdependence.  They  became  corrupt  and  paro- 
chial. The  municipal  reform  of  1835  did  not  touch  the 
United  States,  and  the  reform  of  the  municipal  corpora- 
tions there  was  long  delayed.  Apart  from  the  individ- 
ualism which  in  general  characterizes  the  people,  there 
has  been  a  certain  distrust  of  local  authorities.     These 


m  I 


406 


ECONOMICS 


have  rarely  enjoyed  the  confidence  of  the  people  to  an 
extent  sufficient  to  entitle  them  to  endowment  with  tin 
powers  necessary  to  the  successful  conduct  of  municiiial 
enterprises.  Occasionally  these  powers  have  been  given 
and  withdrawn.  There  have,  however,  from  time  to 
time,  arisen  demands  for  the  extension  of  municipal  en- 
terprise. 

363.  In  Canada. — In  Canada,  the  case  is  somewhat 
similar  except  that  the  growth  of  the  cities  is  more  re- 
cent than  is  the  growth  of  cities  in  the  United  States. 
The  rapid  expansion  of  the  Canadian  cities  and  tiie 
difficulty  of  finding  adequate  capital  to  provide  plants 
for  the  performance  of  the  civic  functions,  even  upon  a 
modest  scale,  have  retarded  the  growth  of  municijial 
enterprise.  But  desire  to  emulate  European  cities  in  the 
management  of  public  services  by  the  municipalities,  and 
the  desire  to  relieve  the  burden  of  taxation  by  the  con- 
sequent profits,  have  combined  to  create  a  large  body 
of  opinion  in  Canada  toward  the  extension  of  municipal 
functions. 

866.  Municipal  officials. — The  effect  of  this  extension 
upon  the  character  of  the  municipal  bodies  has  already 
been  noticed.  The  greater  the  number  of  enterprises, 
the  more  arduous  become  the  duties  of  municipal  coun- 
cillors and  the  more  difficult  it  becomes  to  obtain  mem- 
bers of  the  councils  sufficiently  public-spirited,  disinter- 
ested and  able  to  undertake  these  duties.  This  difficulty 
has  emerged  in  every  country.  The  growth  of  the  cities 
and  the  increasing  complexity  of  their  administration 
has  brought  it  more  and  more  into  relief. 

In  Germany  the  difficulty  has  been  overcome  by  pro- 
fessionalizing municipal  administration.  Those  who  en- 
ter the  service  of  civic  governments  are  educated  for  the 
purpose,  and  those  who  exhibit  special  qualifications  are 


LOCAL   AND    MUXICIPAL   FINANCE  407 

promoted  from  one  municipal  office  to  another,  often  in 
different  towns,  .mtil  tl.ey  arc  appointed  civic  chiefs.  A 
burgomaster  who  has  suc-cessf  ully  administered  the  affairs 
of  a  small  town  is  promoted  to  be  burgomaster  of  a 
larger  one.  Th.s  system  undoubtedly  contributes  to  effi- 
ciency m  civic  government,  but  it  dep-  Ives  municipal  life 
of  Its  democratic  character  and  subordinates  it  to  the 
general  bureaucratic  system  of  the  State 

Great  Britain  hi.s  not  adopted  this  plan.  Until  recent 
t.mes  there  has  been  a  sufficient  number  of  public-spirited 
members  of  the  leisure  class  to  draw  upon  for  m«- 

f  Zl"  K,  "  P"^'''^  '''^'"^'  ^"hout  compensation 
from  the  public  purse.  There  has.  moreover,  long  been 
in  practice  the  method  of  appointing  highly  paid  pro- 
fessional men  to  the  important  civic  offices^  a^nd  wWle 
the  direction  of  the  policy  of  the  municipal  govermnent 
has  remained  in  the  hands  of  the  unpaid  elected  repre- 
sentatives of  the  citizens,  the  actual  administration  has 
been  entrusted  to  these  officials.  This  practice,  however, 
of  iate  years  has  been  considerably  modified 

In  the  United  States  and  in  Canada,  the  numerical 
insignificance  of  the  leisure  class  has  rendered  it  neces- 
sary m  the  first  instance,  to  compensate  the  members 
of  the  mumcipal  councils  and,  in  the  second,  to  pay  the 
avic  chief  such  a  salary  as  will  enable  him  to  devote 
the  whole  of  his  time  to  the  affairs  of  the  city 

The  mayor  is  not,  however,  as  in  the  English  cities, 
elected  by  the  mumcipal  council  nor,  as  in  continental 
cities,  IS  he  appointed  by  the  government.  In  America 
he  ,s  elected  by  the  citizens  at  large.  The  period  during 
which  he  holds  office  varies  in  the  United  States  The 
usual  period  is  four  years.  In  Canada  the  period  is  one 
year,  although  the  holder  of  the  office  is  customarily 
elected  for  a  second  year.    The  method  of  election  and 


4U8 


ECONOMICS 


the  shortness  )f  the  period  appear  to  militate  against  tlic 
selection  of  first-rate  men.  Such  men  will  not  abandon 
professional  careers  under  these  conditions. 

367.  Agitation  for  commission  government. — The  re- 
sults of  municipal  administration  in  the  United  States 
and  Canada  are  widely  regarded  as  having  not  beei) 
favorable.  With  the  object  of  reforming  it,  some  cities 
have  adopted  the  plan  of  reducing  the  number  of  the 
municipal  body  to  three  or  five,  and  have  attached  to  its 
membership  a  salary  sufficient  to  attract  professionally 
qualified  persons  and  to  enable  them  to  devote  the  whole 
of  their  time  to  municipal  affairs.  This  method,  known 
as  commission  government,  seems  to  be  a  step  toward 
professionalizing  municipal  administration.  It  is,  how- 
ever, in  a  transition  stage,  for  the  commission  is  usually 
elected  by  popular  election  for  a  short  i>eriod,  and  tliis 
circumstance  renders  the  eonmiissioners  dependent  upon 
popular  favor.  So  long  as  the  municipal  councillors  had 
their  own  means  of  livelihood  they  were  independent  of 
the  electors  whom  they  represented,  but  the  commis- 
sioners are  public  servants  on  short  tenures,  and  are  there- 
fore peculiarly  exposed  to  the  temptation  of  endeavoring 
to  conciliate  particularly  influential  interests.  Like  the 
German  system,  commission  government  diminishes  tlie 
democratic  character  of  municipal  life,  but,  unlike  the 
German,  it  does  not  present  the  advantage  of  a  system 
of  training  experts  for  municipal  administration. 

368.  Economics  of  municipal  enterprise. — The  mu- 
nicipal debts  of  the  European  cities  are  generally  held 
in  the  cities  themselves,  owing  to  the  large  numbers  of 
the  investing  public  who  reside  in  them  or  have  con- 
nections with  them.  The  municipal  debts  of  cities  in 
the  United  States  and  in  Canada  are,  in  general,  hclii 
elsewhere  than  in  the  issuing  cities.    A  very  large  part 


lOCAL   AND    msiciVAU   FIXaNTK  4OO 

of  tlic  funds  borrowed  by  them  h»v„  1 

tl.e  open  market  abroad.    eZZ  ^T  ^'""'^''^  '" 

taken  by  the  cities  invnl  ..  \         enterprise  un.Jcr- 

each„ewde„,rnd  u  on  he  „""  "''''"'""  *"  '^'  '^'^''t-  «'"1 
with  diminished  fair  The  '' '""'''''  '"  '""''^'^  "P"» 
cially  whencapitafZL;..  T'"''^""'"^^"-'  '"'  ^h"*,  espe- 
eities  find  it  n  ess^v  "o  7  'T*'"^"'  '^  '''''''-'  '^e 
interest  and  the  m2„  /  "T  ""''"'"'"'y  ''*''  -"t^s  of 
-d  public  o^?*"^:;;^^^^^^  private 

inte^^stuponinvestedVn  1^  T"*  "'^  "'"'^^  "^  th« 
the  possession  b- 1  S^oTtt  f/'f  r  *°  '"'"'■"'''''•  ^^'"■'- 
i"<lispensable  to  its  evL  '        '  '''"■"'"*  ^■'''«^''  are 

eitif If  rr tJe  ""'""'"^'  "'^"''-^  -  - 
difference  betw^n   he  in       T'"''' .*°  *''^'  P"^'''=  °f  the 

-ved  on  theTuWi  t  d  t'af^  ""  "P'*"'  •"■- 

earned  by  a  co^^y  relrt  J  Ih^  ^'"^  P™«*^ 

and  other  tave.  „li„     "^^"''^/"'S'  the  same  service,  civic 

all  kindrbet;  U  W^^^^^  '"'  ^7-*'""  ^"^  "^^s  of 

agement  befnf  assumed  aT  ""'  ^'1"'''  ^'^'"  '"  '"«"- 
in  the  avoidance  ofTi  /  ^^'^^ntage  would  also  lie 
*e  abse„;  of  ;:  dt^l^LV''"*^"'  '^{'^^  ^t-ets.  and  in 

*-  is  enteredlntrd  :t\"ra"'^".f  ^  '^'"- 
nation.  "  '*  "earmg  its  termi- 

,"nd"ct  of  the  business  bebl    let      ^'f'^''^  °^  '^' 
«ther  than  on  ecor^om  c  Z     f*^™'ned  on  political 

kt  and  as  re^^^rc^^Xt  ^ub^f  \r^^- 
'*■    A  municipal  service    for  I     ^  "^  ^^^  '^"■ 

h^ned  with  eVo™;nd  itTr^'. ''  °"^"  °-'- 
i"">  ees,  and  it  is  sometimes  conducted 


i 


410 


ECONOMICS 


at  ineconomical  rates.  In  either  case,  the  general  tux- 
payer  must  suffer. 

Municipal  services  are  peculiarly  liable  to  inertia 
People  will  tolerate  in  a  service  rendered  by  themselvis 
or  in  their  name  incompetence  which  they  will  not  tol- 
erate in  a  service  rendered  by  a  company.  This  inertia 
makes  its  appearance  most  conspicuously  where,  in  con- 
sequence of  the  necessity  of  protecting  a  legal  monopoly, 
a  city  finds  itself  obliged  to  acquire  a  substitute  for  it 
which  may  appear  as  a  rival.  For  instance,  if  a  city 
ac(iuired  a  street  railway  and  obtained  a  legal  monopoly 
of  such  a  method  of  transportation,  it  might  be  neeessim- 
for  the  city  to  acquire  also  motor  omnibuses  if  they 
threatened  to  compete  with  the  established  system. 

Cities  which  possessed  a  gas  plant  and  a  legal  monop- 
oly of  the  supply  of  gas  have  been  obliged  to  aniiiirc 
an  electric  lighting  system  in  order  to  avoid  external 
competition  with  their  gas,  and  have  also  been  oblised 
to  check  the  development  of  electric  lighting  because  it 
interfered  with  their  gas  business  and  diminished  the 
value  of  their  gas  plant. 

The  circumstances  that  a  loan  for  a  municipal  enter- 
prise constitutes  an  addition  to  the  civic  debt  and  that 
each  addition  to  debt  renders  each  further  addition 
less  easy  and  in  general  more  costly  is  a  further  disail 
vantage. 


CHAPTER   VI 

SOCIAL    LEGISLATION 

869.  Factor,,  «r/,._While  each  of  the  topics  which 
.re  the  subjects  of  the  followi„«  pages  n.ight  have  been 
discussed  approprmtely  under  one  or  other  of  the  foreao- 

Zht,l'  ''  "  '"*""'  '"^''"'*'*««  '»  grouping  to- 

gether those  numerous  legislative  experiments  which 
have  been  m  progress  for  about  thirty  years,  and  which 
are  known  collectively  as  s.K-ial  legislation.  During  that 
period  many  plans,  not  in  themselves  new.  have  been 
given  a  new  direction. 

The  social  legislation  of  modern  times  may  be  held  to 
have  had  its  starting  point  in  the  English  Factory  Acts. 
No  other  country  by  the  mi.ldle  of  the  thirties  of  the 
nine  eenth  century  had  advanced  so  far  in  individual 
development  by  means  of  mobile  hired  labor  as  had  Eng- 
an,.,  and  none  of  them  had  experienced  the  concentra- 
tion of  industry  to  the  extent  to  which  England  had 
experienced  rt  Practically,  at  that  time,  the  factory 
was  an  English  affair,  and  it  was.  therefore,  inevitable 
hat  English  legislation  concerning  factories  should  be 
the  hrst. 

The  earlier  factory  acts  were  chiefly  concerned  with 
sanitation  because  in  the  nish  of  the  beginning  of  the 
factory  industry,  many  buildings  were  used  for  factories 
jvhich  were  not  constructed  for  and  were  not  suitable 
tor  factory  occupation.  Under  the  domestic  system 
411 


Hi 


WONOMirS 


workers  had  been  crowded  into  siimll  rooms,  and  flic 
eoiiditions,  in  general,  were  prolmlily  siniilur  to  those 
which  may  lie  seen  now  in  the  siiiall  workshops  in  tht 
l''ar  Kast. 

In  the  cities  of  South  China,  weavinjf  shops,  w.urc 
half  a  dozen  hand  \'^"u  weavers  are  employed,  are  oftiii 
almost  without  any  li^ht  and  are  destitute  of  any  kind 
of  comfort.  They  are  mere  holes  in  which  naked  weii\  - 
ers  toil  at  their  looms. 

There  were  some  industries  in  which  workmen  em- 
ployed themselves  and  used  their  own  simple  tools  under 
conditions  which  were  healthful  ind  ajfreeable.  Sonic 
of  the  handloom  weavers  in  country  villages  were  exaiii- 
jjles  of  this.  But  throughout  western  Europe  there  were 
others,  as  there  now  arc-  others,  the  factory  industry  not- 
withstanding, in  which  the  conditions  of  lalwr  were  and 
are  extremely  undesirable  from  a  social  point  of  view. 
although  it  is  almost  impracticable  to  legislate  in  resjieet 
to  them.  These  domestic  industries  are  no  doubt  griid- 
ually  disappearing,  but  recent  conspicuous  examples 
were  umbrella  covering  antl  paper  bag  making.  A  con- 
siderable amount  of  ready-made  clothing  is  partially 
made  by  workers  in  their  own  homes.  Chains  are  also 
made  in  this  way  in  England  in  the  Sheffield  district. 

The  conditions  of  the  period  of  domestic  industry  wen' 
carried  forward  into  the  new  era ;  but  the  greater  con- 
centration of  workers  together  with  the  greater  pressure 
due  to  the  employment  of  machinery  rendered  contin- 
uance of  these  conditions  highly  undesirable.  It  was  in- 
evitable, however,  that  public  opinion  and  legislation 
should  grow  slowly.  The  factory  industry  wa.s  strag- 
gling into  existence.  I'^ndue  severity  in  legislation 
might  easily  have  retarded  its  progress  by  diminishing 
the  margin  of  advantage  between  the  new  and  the  old 


«<H'IM.    I.K(JISI,ATION  4,3 

;,'::,:'■  -""'"^  —  -:;*  i:l'L:;;,,:;! 
'">•"»,«.,„„,; ;:;;::,r  : z™  ;r "r ""■; 

,....cg,..,      , :;':;,;;,  J;;,  >* -■. 

./«";kS  £*:t,s,K:!?  "■■•"■"■■  -' "» >- 

'■'"l-Ioyed:  "'  ' "'  •"  ""^"^^  «"^y  «ere 

In  (Jreat  Britain,  the  D-i-sinn-  nf  n,       •      , 
''"■Slid,  factories  ]JlJ-\T        """  """^^-''""r  law 
tries     ThTZ\  """'"'■  '^*?"'''*ti"n  in  other  coun- 

'-•    The  ™ost  .niportant  check  upon  the  workinHf 


i^ 


414 


ECONOMICS 


children  in  factories  was  the  institution  of  a  system  of 
compulsory  education.  Provision  was  made  for  half- 
timers,  or  children  who  attended  school  for  half  the  day 
and  worked  in  the  factory  for  the  other  half.  This 
system  had  the  drawbacks  or  the  advantages,  according 
to  the  point  of  view  which  may  be  taken,  of  practically 
binding  the  children  to  factory  labor  and  of  forming  a 
special  class  of  half -educated  persons.  This  latter  re- 
sult has  been  considerably  modified  in  the  larger  cities 
by  the  establishment  of  a  system  of  "continuation 
schools." 

But  the  question  of  a  statutory  working  day  has  long 
ceasiii.  to  apply  exclusively  to  women  and  children.  The 
claim  has  been  urgently  advanced  in  every  country  that 
the  workingman  is  entitled  to  a  greater  amount  of  leis- 
ure and  that,  trade  union  regulations  notwithstanding, 
the  hours  of  labor  in  many  industries  have  been  excessive. 
The  case  of  railway  ser\-ants  appeared  to  be  especially 
strong  because  it  was  shown  that  engine  drivers,  brake- 
men  and  signalmen,  whose  alertness  was  of  the  greatest 
importance  for  the  public  safety,  were  frequently  on 
duty  for  a  longer  period  than  it  was  considered  possible 
for  a  human  being  to  remain  in  a  state  of  unremitting 
attention.  Legislation,  for  the  benefit  of  such  cases, 
has  been  passed  by  many  countries  and  railway  com- 
panies have  been  prosecuted  for  imposing  too  prolonged 
duties  upon  certain  classes  of  their  workmen. 

371.  Factors  to  be  considered. — It  is  obvious  that  all 
occupations  cannot  be  dealt  with  on  the  same  footing. 
Some  labor  is  too  exhausting  to  be  continued  for  many 
hours.  The  driver  of  an  express  train  over  a  difficult 
section  of  a  line  may  find  himself  exhai'sted  at  the  end  of 
two  or  three  hours,  while  the  driver  of  a  slow  train  may 
be  able  to  perform  iiis  duties  perfectly  well  for  two  or 


SOCIAL    LKGISLATION  4J5 

three  times  that  period.  From  the  point  of  view  of 
physical  fitness,  therefore,  a  hard  and  fast  rule  appheaWe 
to  al  occupations  cannot  be  laid  down.  From  the  same 
pomt  of  view,  while  there  is  an  invincible  a^" 
agamst  workmg  a  man  for,  say,  forty-eight  houf^"  ^ 
tinuously.  whether  he  is  willing  to  work  or^not.  ?he  ar2 
ment  acquires  less  force  with  the  diminution  of Th 
hour.     When  the  number  of  working  hours  is  brought 

meit  "''  •*  '°  ''«^'  °^  ^'^  ^y  J^g'^J'^t-e  enact- 

Apart  from  the  question  of  physical  fitness,  there  is 
the  question  of  the  working  force  requisite  for  a  certain 

shifts  of  workmen  are  employed,  each  shift  working 

Hill  result.  If  four  shifts  are  employed,  each  shift 
Hwkmgsjx  hours  a  day,  either  the  labor  of  the  six-hour 
day  must  be  as  productive  as  that  of  the  eight-hour  dTy 
0  the  product  will  be  less.  Even  if  the  workmen  were 
btaining  the  whole  product  of  their  labor,  it  is  clearTh  J 
hey  would  require  to  produce  as  much  in  six  hours  as 
they  formerly  did  in  eight,  or  the  amount  receivable  by 

earlier  hours  of  work  is  in  general  more  productive  and 

es,it  /r  T'  ''™''  Progressively  less  until  ex- 

cessive  fatigue  puts  a  stop  to  labor  altogether,  but  it  is 
not  necessarily  an  advantage  to  concentrate  exertion  into 

a  i^ff'^^  ^"'^  """'"'"^  eight-hour  day  would  be 
a  great  advantage  to  those  workmen  who  could  employ 
ttar  leisure  time  in  promoting  their  own  welfare  in  a 
h'gh  sense;  but  there  would  be  little  individual  and  no 


416 


ECONOMICS 


social  advantage  in  work  at  high  pressure  for  a  few 
hi  jrs  with  empty  leisure  at  the  end  of  it.  While  mere 
quantity  of  physical  product  is  not  in  itself  a  desirable 
social  end,  it  is  desirable  from  a  social  point  of  view  that 
sufficient  production  should  take  place  to  enable  the 
various  communities,  of  which  the  working  world  is  com- 
posed, to  enjoy  as  high  a  standard  of  material  comfort 
as  possible.  That  this  sufficient  production  should  be 
effected  without  the  exploitation  of  any,  either  by  a  part 
of  the  community  or  by  the  whole  of  it,  is  certainly  a 
desirable  social  end  and  this  end  would  appear  to  be 
accompUshed  more  certainly  by  improved  organization 
of  production  in  such  a  way  as  to  diminish  exhausting 
toil,  rather  than  by  the  negative  process  of  imposing, 
arbitrarily  and  universaUy,  a  statutory  number  of  hours 
of  enforced  leisure. 

The  problem  of  the  working  day  must,  indeed,  be 
attacked  in  detail.  In  those  occupations  in  which  labor 
combinations  are  ineffectual  in  securing  reasonable  con- 
ditions as  regards  the  number  of  working  hours— because 
the  pressure  of  competition  for  employment  is  so  great 
or  because  of  inherent  difficulties  of  combinations  in  the 
particular  occupations— it  may  become  the  duty  of  the 
State  to  prevent  the  exhaustion  of  its  working  force  by 
limiting  the  number  of  working  hours.  The  influence 
of  the  diminution  of  working  hours  upon  the  methods  of 
wage  payment  would  have  to  be  taken  into  account. 
If  it  led  to  an  extension  of  the  piece-work  system  and  if, 
in  this  way,  it  rendered  the  combination  of  labor  more 
difficult,  the  reactions  might  be  unfavorable  to  the  inter- 
ests of  labor  taken  as  a  whole. 

372.  Accident  com pennation.— Under  so-called  Em- 
ployers' Liability  Acts,  which  were  in  force  in  manv 
countries,  employers  were  liable  to  the  extent  of  their 


SOCIAL    LEGISLATION  ^7 

means  for  damages  to  workmen  in  consequence  of  injury 
received  by  tliem  in  the  course  of  their  employment. 
The  employer  could,  however,  in  certain  cases,  plead  in 
defence  at  comm.Hi  law  that  the  injury  was  committed, 
not  by  his  negligence,  but  by  the  negligence  of  a  fellow 
employee  of  the  injured  man  and  that,  therefore,  the 
employer  was  not  liable.  The  employer  could  also  plead 
contributory  negligence  on  the  part  of  the  injured  work- 
man. 

The  defences  of  common  employment  and  contribu- 
tory negligence  appeared  to  neutralize  'le  benefits  of 
the  statute  law  of  employers'  liability,  and  there  arose 
gradually  in  Great  Britain,  on  the  continent  of  Europe, 
and  in  America,  a  demand  that  the  basis  of  the  law 
should  be  altogether  altered,  and  that  injured  workmen 
should  be  compensated  for  industrial  accidents  provided 
these  occurred  out  of  or  in  course  of  their  emjiloymcnt, 
whether  a  fellow  servant  had  been  guilty  of  negligence 
or  not,  while  the  onus  of  proof  of  contributory  negli- 
gence on  th  ?  part  of  the  workman  himself  should  be 
thrown  upon  the  employer.  It  was  widely  held  that  the 
mdustrial  system  should,  by  some  means,  b(  compelled 
to  pay  compensation  for  injuries  received  in  its  service, 
instead  of  leaving  injured  workmen  to  their  own  re- 
sources or  to  those  of  public  or  private  charity. 

This  view  led  eventually,  after  much  discussion,  to 
the  adoption  in  Germany,  Austria  and  France  of  some- 
what varying  types  of  compulsory  insurance  against  in- 
dustrial accidents  and.  in  England,  to  successive  Work- 
men's Compensation  Acts.  In  the  United  States,  in  the 
present  state  of  the  Constitution,  it  would  appear  that 
the  regulation  of  industry  within  each  state  is  the  affair 
of  that  state  and  that  the  Federal  government  would  be 
encroaching  upon  the  rights  of  the  several  states  if  it 

C— 1-27 


fj 


418 


ECONOMICS 


were  to  administer  a  general  law.  The  chief  industrial 
states  have  thus  separately  attacked  the  question.  Sev- 
eral acts  have  been  passed,  varying  in  important  details. 
Some  of  the  legislation  and  proposed  legislation  has  fol- 
lowed the  English  model ;  but  most  of  the  acts  which  have 
already  been  passed  have  followed  the  model  of  Ger- 
many. The  German  system  may,  for  this  reason,  first 
be  described  briefly. 

373.  German  accident  insurance. — Every  industrial 
enterprise  in  Germany,  upon  an  extended  list  of  indus- 
tries, must  belong  to  one  of  a  series  of  groups  which  are 
arranged  chiefly  with  regard  to  the  relative  hazards,  the 
most  hazardous  industries  being  at  one  end  of  the  scale 
and  the  less  hazardous  being  at  the  other.  In  each  in- 
dustrial center,  the  local  industries  are  classified  in  these 
groups  and  for  each  group  there  is  formed  an  association 
of  employers  in  the  industries  of  the  group.  There  is 
also  formed  a  similar  association  of  workingmen  in  each 
group  of  industries.  The  administration  of  the  whole 
system  is  in  the  hands  of  the  Imperial  Insurance  Depart- 
ment. The  direct  cost  of  the  system  is  divided  between 
workingmen,  employers  and  the  State.  All  working- 
men  must  contribute  to  the  so-called  Sick  Funds.  Thest 
are  maintained  by  the  contributions  of  insured  persons 
and  of  employers.  The  proportional  burdens  are,  upon 
insured  workmen,  two-thirds  and  upon  employers  one- 
third  of  the  amounts  necessary  to  maintain,  at  a  certain 
fixed  rate,  injured  workmen  for  four  weeks  after  the 
expiration  of  three  days  from  the  date  of  the  accident. 

The  same  proportions  apply  to  the  funds  necessary  to 
provide  sick  allowances  to  such  workmen,  with  the  addi- 
tion of  sixteen  and  two-thirds  of  the  previous  earnings 
of  the  workmen,  which  amount  is  contributed  by  the 
employers  or  by  the  accident  associations  composed  of 


SOCIAL    MXilSLATIOX  ^,g 

dent  assj2n""oZ^7"''"'  ?*'"'-^'  '•>-  "^  -- 
contributor.  Th  beSs  '' •IT'"^''''-^  ""^  ""^  ->- 
for  temporary  dirbibtval  ^f /"  '"J"''*^'"  "orkmen 
to  one-half  of  tt  a^  ["^^^^  '"'"  ""  '^"^  ^^^  --"^-^ 
craft  of  the  injured  ToSml?  ITT"^'''  '"  *"^ 
upon  uhich  the  con,..^,>«„/       •     ^  ,       maximum  wage 

teenth  week  o  dZuuViU  """  *'"  '^"''  *"  '^'  *hir- 
"f  such  averaii  %  ^.Th'''';"*'""  '"^  *"'-*''-'^ 
a  ion.er  periS  «r thS^!  ^^^^  ' tf  ^'  '"'''"'  '"' 
category  of  permanent  disability  ^""'^  '"'°  ^'^^ 

.ic^n;;Sr^;;£,f -,r^^«-  -^  -r. 

nation.    I„  cases  of  .Hrn^        .  r    ,'*'""  *"  "'^  compen- 
n>aximum  an^r  oft^Sjtj'^^t;  T- "^  " 

-  the  ^^^J:^::'::r'icz:^;:^^^'^ 

s.on  vanes  in  respect  to  the  disabiSy  '  "'  *'^  P^"' 

-"-•ty,  and  annul  i  s  a  e^ai"  Hmm  ^^^ 
a'taintheageofsixteenyearr  Teetotal  J  T'  """^ 
t-es  must  not  exceed  60  per  c^nt  of  the  n      '"     """"' 
earnings  of  the  deopn.  J       7  Previous  annual 

Burial^expen    /a'ra To  .^H      ''"  '"''^"'''*'^^  «^  «'«'-• 
annual   earn  Ws    iS   f     "''  *°  ™c-fifteenth  of  the 

0"  the  dea  h  o  \        ft^'-'.cases,  a  lump  sum  is  paid 


m 
Ml 


420 


EC'ONO.MICS 


aiice  arbitration  courts.  Conii)ulsory  accident  associ- 
ations, composed  of  accident  associations  to  which  em- 
ployers must  belong,  are  empowered  to  formulate  "-egula- 
tions  for  the  prevention  of  accidents  and  to  impose  nnes 
upon  the  employers  and  upon  workmen  who  infringe 
these  regulations. 

374.  German  si/stem  not  financ.  I  by  State. — The 
German  system  is  thus  not  a  system  of  State  accident  in- 
surance in  the  strict  sense;  it  is  controlled  by  the  State. 
but  the  funds  remain  in  the  hands  of  the  accident  and  sick 
associations.  The  sick  associations  were  in  existence 
before  the  accident  insurance  law  was  passed.  It  is  very 
difficult  to  compare  the  costs  and  the  results  of  the  (ier- 
man  system  with  those  of  other  systems,  for  that  and 
other  reasons.  The  accident  insurance  funds  do  not 
stand  by  themselves.  For  the  first  four  weeks  of  dis- 
ability the  compensation  is  jiaid  exclusively  from  the 
sick  funds,  and  for  the  next  nine  weeks  it  is  partly  paid 
by  these  funds.  In  the  early  years  of  the  operation  of 
the  German  system  there  was  much  malingering  or 
fraudulent  application  for  sick  and  accident  relief,  in 
spite  of  the  expectations  that  the  intimate  relations  witli 
one  another  of  the  members  of  the  sick  funds  woiilil 
result  in  the  prevention  of  fraud.  It  is  understood  that 
this  feature  has  been  to  some  extent  diminished  by  care- 
ful medical  superintendence.  In  the  German  system, 
accident  insurance  is  also  aided  by  the  police  and  by  the 
postal  departments,  and  the  costs  of  these  services  do  not 
appear  separately  in  the  accounts. 

The  success  of  the  German  accident  insurance  law  may 
perhaps  be  referred  partly  to  the  fact  that  the  law  was 
not  applied  to  an  already  highly  developed  industrial 
system,  but  that  it  grew  up  with  it,  and  partly  to  the 
fnct  that  the  highly  regulative  character  of  the  German 


SOCIAL    LEGISLATION 


421 


administration  to  whieli  the  people  are  lial)ituate(l  has 
ciiablea  the  government  to  force  employers  and  employed 
alike  into  associations  controlled  hy  the  State.  The 
ffreat  commercial  prosperity  which  (Jermany  has  en- 
joyed during  the  period  in  which  the  iiisnrance  legisla- 
tion has  been  in  force  has  facilitated  the  hearing  of  the 
hurden  of  accident  and  old-age  pension  funds  alike. 
The  employers  have,  however,  been  complaining  of  the 
great  increase  in  the  cost  of  social  legislation  and  the 
l)ressure  of  it  upon  certain  industries. 

873.  Workvicn's  Compensation  Act  in  England.— 
The  Workmen's  Compensation  Act  is  of  a  different 
type.     It  applies  to  accidents  in  all  employments  and 
to  twenty-four  occupational  diseases  (this  number  may 
be  added  to  by  the  Home  Secretary).     The  Act  pro- 
vides for  compensation  for  injuries  by  accident  arising 
out  of  and  in  course  of  employment  which  prevent  a 
workman  fi  nn  earning  full  wages  for  one  week  or  more, 
or  which  cause  his  death.     In  case  of  wilful  misconduct, 
resulting  in   partial  disablement,  no  compensation  is 
paid,  but  if  the  workman  is  permanently  disabled  or 
killed,  compensation  is  payable.     All  manual  labori^fs 
and  any  regularly  employed  person  whose  wages  are 
less  than  £250  (.$1,216.63)  per  annum  comes  under  the 
operation  of  the  Act.    The  benefits  are  as  follows:  for 
partial  disability,  there  is  a  weekly  payment  during  life 
not  exceeding  that  loss  in  earning  power,  beginning  one 
week  after  disablement;  for  permanent  total  disability, 
a  weekly  payment  after  the  first  week  of  not  more  than 
one-half  of  the  average  weekly  earnings,  but  not  more 
than£l  ($4.87)  payable  during  life;  for  temporary  dis- 
ability; and  for  death,  a  sum  equal  to  three  years'  earn- 
ings.    If  the  amount  is  less  than  between  £150  to  £.300 
(>^729.98  to  $1,459.95)    the  compensation   is  giv.   i   to 


I 


f 


Hi 


ECONOMICS 


wholly  dependent  persons,  the  amounts  payable  to  par- 
tial dependents  are  settled  by  arbitration  and  all  sums 
are  to  be  invested  by  order  of  the  county  court.  Burial 
expenses  to  the  amount  of  £10  ($48.70) ,  including  med- 
ical attendance,  are  jjrovided  for.  Free  medical  attend- 
ance is  given  only  in  cases  of  death.  The  entire  cost  of 
the  compensation  rests  on  the  employer,  who  may  insure 
against  his  liability  in  any  certified  insurance  scheme. 
There  are  sjjecial  provisions  for  the  payment  of  com- 
pensation ill  case  of  the  bankruptcy  of  the  employer. 
Disputes  arising  under  the  Act  are  settled  by  arbitration 
or  by  the  county  court,  and  not  by  a  specially  established 
tribunal. 

The  English  system  is  thus  a  system  in  which  the  cost 
of  compensation  falls  directly  upon  the  employer,  who 
may,  if  he  chooses,  insure  against  the  liability.  Insur- 
ance is,  however,  not  compulsory,  nor  are  the  employers 
grouped  together  as  under  the  German  system.  The 
prevention  of  accidents,  being  in  the  hands  of  the  Fac- 
tory Inspectorship,  is  not  mingled  with  the  compensa- 
tion scheme,  as  it  is  in  Germany. 

376.  Federal  compensation  for  accident  in  the  United 
States.— A  Federal  act  was  passed  by  the  Congress  of 
the  United  States  in  908  providing  for  compensation 
for  accidental  injuries  sustained  by  employees  of  the  gov- 
ernment. This  special  act  is  by  no  means  so  liberal  in  its 
benefits  as  either  the  German  or  the  English  general 
acts.  The  "waiting  time,"  or  the  time  which  must 
elapse  after  the  accident  until  benefit  begins  to  accrue, 
is  fifteen  days,  against  the  German  three  days  and  tlie 
English  seven.  The  amount  of  compensation  for  death 
is  only  one  year's  wages,  and  that  is  subject  to  deduction 
of  the  amount  paid  in  the  current  year  up  till  the  time 
of  death.     Xo  burial   expenses  are  allowed.     In   case 


SOCIAL    LEGISLATION  4^3 

of  disability,  one  year's  wages  only  are  paid,  whether 
the  chsabihty  IS  total  or  partial,  temporary  or  permanent. 
In  case  of  d.spute.  there  is  no  appeal.  The  measures 
adopted  by  the  various  states  or  projected  by  them  can- 
not be  detnled  here.  Some  of  them,  notably  the  State 
of  Washington,  have  adopted  the  German  system  with 
modifications. 

877.  Question  of  respomibilit,,.— The  questions  of 
economic  interest  arising  out  of  this  form  of  social  legis- 
lation are  mainly  these;  first,  the  relative  advantage  of 
■"dividual  and  of  collective  responsibility;  secoJ^  as- 
sumption of  the  cost;  third,  the  economic  effect 

Individual  responsibility,  which  is  the  feature  of  the 
Knghsh  system,  appears,  on  the  whole,  the  system  most 
Jikely  to  result  in  the  prevention  of  accidents  by  em- 
ployers and  by  workmen  alike.     The  employer  has  to 
pay  compensation  and  the  workman  has  to  suffer  the 
loss  of  a  week's  pay  for  any  accident.     In  the  English 
system,  the  whole  scheme  is  aided  by  a  highly  efficient 
tactory  inspection  by  qualified  inspectors.     The  em- 
ployer who  is  individually  responsible  may  insure  his 
risk  under  conditions  which  enable  him  to  do  so  at  a 
minimum  cost  for  such  risks.     He  can,  if  he  chooses, 
pay  his  premiums  to  a  mutual  insurance  company  com- 
posed of  all  employers  in  a  district  or  in  a  country,  or 
he  can  do  so  to  a  company  whose  risks  are  international. 
Ihe  larger  the  total  area  of  risk,  the  smaller  is  likely 
to  be  the  cost  of  the  individual  risk. 

Collective  responsibility  under  the  German  system 
involves  compulsory  mutual  insurance  in  relatively  small 
groups,  and  mutual  inspection  within  these  groups  If 
the  groups  are  very  small,  the  burden  of  the  accidents 
may  be  very  great  and  the  careful  employer  is  burdened 
to  the  same,  or  even  to  a  greater,  relative  extent  than 


I 


4«4 


.  r.rovo^iics 


the  careless  employer.  If,  for  example,  an  employer 
succeeded  in  altogether  preventing  accidents  in  his  works 
hy  the  installation  of  certain  machinery  and  by  close 
supervision,  under  the  system  of  individual  responsibil- 
ity his  risk  would  lie  nil;  but  \uider  the  collective  sys- 
tem he  would  still  be  responsible  for  comjiensation  for 
accidents  in  the  works  of  his  less  careful  fellow  employ- 
ers. The  careful  employer  might  thus  have  a  high  in- 
surance rate  to  pay  in  addition  to  the  cost  of  tlie  measures 
by  means  of  which  he  had  eliminated  accidents  in  his 
own  establishment. 

The  disadvantage  of  the  system  of  individual  respon- 
sibility ii  that  in  cases  of  pensions  given  by  way  of  com- 
pensation (a  point  to  be  considered  later) ,  the  individual 
employer  cannot  be  regarded  as  being  able  always  to 
offer  undoubted  security  for  the  continuance  of  the  pay- 
ment of  the  pensions,  since  he  cannot  be  compelled  to 
continue  to  carry  on  his  business  against  his  will.  This 
difficulty  might,  of  course,  be  avoided,  as  it  is  avoided 
in  the  English  system,  by  the  payment  of  a  lump  sum 
by  the  employer,  which  sum  is  invested  by  the  order  of 
a  court.  In  the  case  of  large  and  stable  enterprises,  such 
a  difficulty  need  not  arise.  The  cardinal  objection  tii 
the  mutual  system,  as  applied  to  small  groups,  is  that 
the  area  of  each  is  too  small  to  permit  of  economical 
insurance. 

The  system  of  collective  responsibility  in  groups  in- 
volves either  the  collection  of  premiums  in  excess  of  tlie 
amount  of  the  annual  sum  expended  in  compensation, 
for  the  purpose  of  providing  a  reserve  against  the  future 
payments  arising  out  of  accidents  of  the  year,  or  the 
collection  of  assessments  coinciding  precisely  with  the 
amount  required  within  the  year,  to  discharge  the  cur- 
rent obligations  of  the  group. 


SOCIAL    LlXilsl.ATION  443 

Zu.  «;'*«"tW  "f  the  fir.t  ,„otl«xl  i.  tl,«t  if  t  1. 

>.x-m.u.n.  are  ba.s«|  .„,..„  ,„.„,,er  ac-tuarial  cal     ll    ,  " 

uun  en  of  the  accidents  of  the  vear.     A  iwrtlnn  «f  .1 
funds  remain,  in  hand  hec-ause  Vtdl  pa^.^^;    ,1    : 
cmpensation  or  in  pensions  has  not  -S;;;:!    ."""^  "' 
llie  advantage  of  the  second,  or  assessment  „»>fl     i 
;s^  hat  nothing  is  taken  fron.  th;  co-S:!    '  .'S^t 
eon.e  for  compensation,  except  Mhat  is  necessary  for  1 1 
annual  payment,  while  the  employers  can  S 
"seo/  the.r  busmess.  th..  f„n,|.s  which  represent  the  ,li 

J  r  ^d  :::^rfr:;:'=^^ 

required  and  that  accumulation  involves  expense  of  n.m. 
agement  and  risk  of  loss      Tl,^  ,i-     ,'-''''^"*^  "' "'a"- 
second  method  are  thntti,  ''"'"'Ivantages  of  the 

'"""oa  are  that  the  assessments  irraduallv  i>i 
crease  as  the  cumulative  effect  of  the  granling  "    ad 
jonal  pensions  annually  makes   itself  fe       and   t't" 
anges  m  the  personnel  of  the  group  migh      lie  le  th    e 
«ho  gave  up  business  and  left  the  g  oupOf  Ta  t  of  tJS 
ol.hgat,ons,  while  newcomers  would  ij  calS  .1  '  to 

An  assessment  system  in  a  mobile  grouD  mi^ht  +!,..» 
Jesuit  in  insolvency  of  the  fund.    AccmnlreXl  g 
t'ons  in  respect  to  long  past  acci.lents  mi..ht  eventuSlv 


by  the  State  or  the  scheme  would  hav 


e  to  l)e  aban- 


4«0 


ECONOMirS 


iloned.  A  wheme  ha.sed  \i]K)n  iisitcssnientR  levied  on  in- 
(luKtrial  groups  on  the  ground  that  the  industry  in  which 
un  accident  occurs  ought  to  l)ettr  the  burdenof  conii>ensa- 
tion,  thus  seems  likely  to  drift,  in  the  first  instance,  into  a 
scheme  in  which  all  industries  bear  the  burden  out  of  a 
common  fund  and,  later,  into  one  in  which  the  whole 
of  the  burden  is  throvMi  directly  npon  the  general  tax- 
pu_,wr.  Unless  sucii  u  .,ysi.eiji  *  eic  supplemented  by  a 
very  rigid  factory  iiibptction,  tl'-  Itulustrial  accidents 
might  become  imvhIi  mo;'c  fr'niuri!  than  would  be  the 
case  under  almost  ain  irMr  '^ysu-.i!. 

879.  Asiiumi)tion  of  rr. •</,■*. — In  tlie  Germansystem  the 
main  cost  of  conipensiitid  i  is  divided  between  the  em- 
ployer and  the  worknmn.  Ilit-  State  bearing  only  a  ])art  of 
the  cost  of  administruti  >n.    The  contributions  are  levied 
directly  upon  the  workmen  and  the  employer  respti ' 
ively.     In  order  that  the  employers  may  have  more  ii 
fluence  in  the  distribution  of  the  benefits  of    !■■    s;i-k 
associations,  they  have  even  asked  that  they  be  i^i'i  niil,i..<l 
to  contribute  more  than  the  lav  originally  pro\  ,.!i  i  • 
In  the  English  system,  the  wiiole  of  the  cos'  (s  ')    . 
directly  by  the  employer  and  this  method  also  is  n  c.:! 
mended  in  several  of  the  projects  which  have  'ui'i  ■■ 
brought  forward  in  the  United  States  and  Canada.    In 
the  report  upon  Workmen's  Compensation  by  Sir  Wni. 
R.  Meredith  to  the  Ontario  Government,  the  advisa- 
bility of  this  is  strongly  urged.    On  the  other  hand,  the 
Canadian   Manufacturers'    -^-ssociation  has   suggested 
that  the  workmen  contribute. 

The  important  question  "s  not,  however,  upon  whom 
the  cost  is  imposed  directl;. ,  but  by  whom  the  cost  must 
be  borne  eventually.  It  has  been  argued  that  if  the  cost 
is  thrown  upon  the  employer,  and  if  he  is  unwilling  <ir 
unable  to  bear  it,  he  will  be  able  to  add  it  to  the  price  of 


soci.vi,  i.i;f:isi..\TK)\  447 

h«  pr.Hl,.ct     If  he  c,.„I,l  .lo  (hi,  ,J,,  e„.t.,„ur  w„„l,|  l,„vo 
"  -r  the  hunlen.    Jr,ver.„„„,    ,„  ...t  of  '^ 

...  for  a«.„k.„  s  as  „  ,a.,  „,„,  „  ,„  -^  „,^.  J^ 

of  forwanl  «„.l  |,„,kwar.l  shifting  « hid,  wc  have  al    'a  v 
e.xa„„„e.l  ...  „„  atnu.,,,,h..r.  of  perfect  «„„petitir'  the 
consumer  woul.l  have  to  k-ar  the  cost,  either  i,       e 
crea.se  of  the  priee  or  in  the  ahsenee  of  a  redue  ^.r      1  ^  . 
a  re,h.ction  «„„ld  have  taken  ,.huv. 
If  the  employers  are  in  the  position  of  monopolists 

must  pay  the  eomiK..nsation  out  of  their  profits  from 
th.s  rack  pr.ee.    Hut  if  the  con.petition  is  such  t  a      "e 
pr  ee  cannot  be  increase.1  and  that  the  en.ployers  are 
o    a.nu,«  only  a  n.ar^inal  profit,  while  the  XkJ, 
a  e  recavm^  wages  in  excess  of  their  „.ini„„m.  subsist- 
ence   the  c.«t  of  tte  insuruM.,    will  fall  „p„„  them  i„ 
tl  e  form  of  reduced  wages  or  „.  the  forn.  of  the  absTni^ 
-f  an  .nerease.  u-hich  would  otherwise  have  taken  place 
It  should  l^  ohserve.1.  however,  that  very  small  costs 
•mm  m  general  where  they  are  first  impoied.  and  it 
-he  cost  of  insurance  is  inconsi.lerable  its  direct  impo- 
■'<";n  upon  the  employer  would  not  necessarily  result 
"  .ts  be.ng  shifted  either  to  the  consumer  or  1^"" 
Workman. 

If  an  attempt  is  to  be  made  to  impose  the  b.irden  of 

cmpensafon  for  accidents  upon  the  industrv,  from  the 

^ln,m,stra hvc  point  of  view,  it  is  undouhtcdlv'  less  c"«tlv 

o  .mpose  .t  upon  the  employer  than  to  impos'e  it  directly 

!?•    1  7'^'"""-  «"■■■"'?  t"  the  greater  cost  of  collec- 

■on  m  the  latter  case.    Since  the  workman  is  usually  in 

a  weaker  economic  position  than  his  employer,  it  is  likely 

"^at.  m  the  normal  case,  all  burdens  such  as  the  cost  of 

-mpensation.  vh.le  levied  directly  upon  his  employer. 

'See  Page  (187). 


ill 


428 


ECONOMICS 


will,  at  least  during  certain  periods,  eventually  fall  upon 
liini.  For  this  reason  it  lias  been  advocated  that  all  sucli 
burdens  shoidd  be  l)orne  by  the  state;  that  is,  by  the 
general  tax  fund,  but  the  ulterior  result  of  such  an  ar- 
rangement might  involve  not  only  a  greater  amount  of 
malingering  than  presently  exists,  but  a  larger  number 
of  accidents. 

380.  Economic  effects  of  workmen's  compensation 
sjistcms. — Experience  has  shown  that  when  a  new  sys- 
tem is  established  in  response  to  philanthropic  agitation, 
there  is  a  disposition  on  the  part,  not  only  of  those  for 
whose  benefit  it  was  intended,  but  of  others,  to  take  ad- 
vantage of  it  and  that  there  is  thus  a  possibility  of  even 
a  soundly  based  scheme  being  compromised  at  the  out- 
set. This  is  peculiarly  true  of  all  schemes  which  are 
organized  or  aided  by  the  state. 

The  experience  of  the  English  Act  immediately  after 
its  coming*  into  force  showed  that  the  duration  of  sick- 
ness of  workmen  regulated  itself  according  to  the  act, 
Since  the  act  required  a  workman  to  be  sick  for  seven 
days  before  he  could  receive  sick  allowance,  the  period 
of  sickness  began  to  lengthen.  In  one  mutual  society 
operating  under  the  Act,  during  the  six  months  prinr 
to  its  operation,  1.9  per  cent  of  workmen  under  its  i)ii)- 
visions  suffered  from  illnesses  lasting  between  seven  and 
fourteen  days,  while  3.5  per  cent  suffered  illness  lastiii}; 
longer  than  fourteen  days.  In  the  first  six  months  cif 
the  operation  of  the  act,  7.4  per  cent  of  the  workmen 
had  illnesses  lasting  the  shorter  period  and  6.9  per  cent 
had  illnesses  lasting  for  longer  periods.  In  other  words, 
the  claims  for  compensation  fully  doubled  in  number. 
From  the  point  of  view  of  production,  a  lax  administrn- 
tioii  of  a  workmen's  compensation  act  must  l)e  disadviin- 
t:igeous. 


SOCIAL    LEGISLATION-  429 

881    Old-age  K««o»,.-Cl„.se]y  coniiette,]  «itl,  tl.c 
ta^,.c  of  sickness  insurance  is  that  of  old-age  pension 
The  pay„,e„t  of  annuities  to  persons  who  haveCn  r    ." 
uted  to  funds,  established  for  the  purpose  of  givinran 

new  Th  s  method  was  practiced  by  the  me.lieval 
gudds  and  by  their  successors,  the  Liveried  Co.Zanics 
Incorporated  Trades  and  the  Friendly  SocS  Z  ' 

boLs"?ch'^  ^'t  ^^™'^  "'  ''^  existe„c?:f  C 
bod,es     Such  a  practice,  widespread  as  it  was,  and  sup- 
plemented  as  ,t  was  in  the  early  ages  by  bene/acfons  o f 

state  schemes  unnecessary.  Schemes  involving  the 
^-rantmg  by  the  State  of  pensions  on  the  ground  of  aJe 
were  however  frequently  advanced  from  th  eid  ff 
l.e  seventeenth  century  onwards.     So  far  as  the  write 

aware      .e  earliest  of  these  schemes  were  all  advan  e  1 
".England;  ,t  was  not  until  1880  that  the  German  Old- 

f«ri  r"'"''*-^'  ^"""'•ance  Law  was  passed. 
JS2   Wston,   of  pension   acts.~The  earliest   Eng- 
sl     schemes    were   Daniel   Defoe's   public    and    com- 
ulso,,^  scheme  of  ,692  or  1603  (published  in  his  EssTv 
u,K,n  Projects  m  1607) ;  and  Dowdeswell's  Bill  of  177,3 

out  Iv   hrrV'*^  ?"""  "'  ^''"™°"^'  ^"*  «-  «-o-i 

Uurke  '  ''''"■'''  *^'  ^"PP""-*  °f  Edmtmd 

Both  of  these  schemes  involved  contributions  bv  those 

ar,es.  Defoe  s  scheme  was  compulsory,  DowdeswelFs 
'"^  olved  payment  of  deficiencies  out  of  the  rates. 

RollesBdl  (1787)  provided  for  payments  into  a  fun.l 
n  nch  and  poor  alike:  the  poor  alone  .-eceiving  from  the 
fund   benefits    for   acci.lent,    misfortune    or   old    Ige 


430 


ECONOMICS 


Thomas  Paine,  in  his  "Agrarian  justice"  (1795-96),  de- 
velops a  plan  for  a  Xational  Fund,  raised  by  means  of 
heavy  succession  duties,  out  of  which  there  was  to  be 
paid  to  every  person  attaining  the  age  of  twenty-one 
years,  £13  by  way  of  compensation  for  the  loss  of  natu- 
ral inheritance  through  the  introduction  of  the  system 
of  landed  property,  and  on  attaining  the  age  of  fifty 
£10  per  annum  during  life.  Lansdowne's  Bill  (1837) 
proposed  to  add  from  local  funds  25  per  cent  to  the 
amounts  contributed  by  the  members  of  Fri?ndly  Socie- 
ties. Corrance's  project  (1869)  also  involved  assist- 
ance to  Friendly  Societies  by  the  State  in  order  to  enable 
them  to  provide  pensions  to  other  members  on  attaining 
the  age  of  sixty  or  sixty-five. 

Canon  Blackley  proposed  ifi  1879  a  comprehensive 
scheme  of  state  |)ensioiis  for  tlie  aged.  This  scheme  was 
followed  immediately  by  that  of  Mr.  Rankin,  and  in  1889 
by  that  of  Mr.  K<le.  In  the  same  year  the  German  Old- 
Age  and  Invalidity  Law  was  passed. 

The  provisions  of  this  law  werf  very  similar  to  those 
of  <  ari/m  Blackley's  m-hfme  of  187i*.  Several  projects 
for  i)i<i-»j(f  j)ension  funds  were  ndvam-ed  after  the  ado])- 
ti(>n  of  tiif  plan  l)y  Germany  and  in  England  several 
(  omniissiofi  A^s  on  the  question  (1893,  1895,  IS'S, 
IH'M.  1900,  1908^ 

EventuaMy  an  Old-Age  Pwision  Act  granting  pen- 
sions without  previous  coritriluitMms  was  passed  in  190H. 
An  Old-Age  Pf-nsion  Act  was  passed  by  Xew  Zealand 
in  1898,  by  Xew  South  Wales  in  1900,  and  by  Vic- 
toria and  Queenslaixl  later.  The  Commonwealth  nf 
Australia  adojited  n  uniform  pension  law  in  1908.  In 
the  \  'nited  States  there  are  numerous  partial  systems 
for  pensioning  certain  classes  of  ])ersons  under  Feder.il 
and  under  state  laws,  but  there  is  no  general  law. 


■w'-'-ww^'  1 


SOCIAI,    LKGISLATIOX  43, 

383.  Canadian  situation.~In  Canada  th^r»  • 
eral  pension  Jaw.    In  January    19  '  "    sJ'   '^'  «"  *"'- 
Committee  M^as  appointed  bv  H,.  '*  ^P"'"*^ 

purpose  of  hearing  evEe  and  r^  government  for  the 
number  of  person!  t.   S  ?f^'"^  '  '"'^P'"-'-    The 

would  „pp,rruTd  i;L7  z  tzr''--  ^•"*^'" 

;"e  pension  is  given,  an'd    b)    pU  ^ c wTofl"'''^' 
to  whom  it  is  to  be  given      '    ^       ^  '^'^^^^  of  persons 

gave  a  pensL  of  $f  pe  W  ioTbr"  ""'  "'"''^'^ 
having  reached  that  age  were  unall'  '^"°"''  "'''°' 
selves  MhoUv  from  th^ir  I  *"  mamtain  them- 

visionaJly  as^o  lows  ThJ?  .T"''  ""'^  ""  P"*  P™" 
sixty-five  years  and  ;  ,      ''  ""'"'^''  "^  P^'-^ons  of 

a.Ia  is  aboitTpe?  cerrTf-fb  T  ""  r"'^*'°"  "^  ^an- 
"f  these  were  unable  t'l.      P"P"'''*'°"=  if  one-fifth 

like  Canada    where  fl  P*'' •''''"■•    I"  a  country 

".at  an  o^age     :rsoril       P^T  '^-'  "  -«>'  be 
U'hether  its  clt  should  iT     T'   ^'"'"'  "^^^^''"y- 

.-ralreveneoJtSrrSSllI^^t'rr*''^ 

r^^t^jr^-sHftS-;^ 

iMtenton  of  the  fund.  ™''  ""•*  *•>« 

nrttf£:sl^:&b^^''''--^-ges  or  emp.ov- 

-t,havernts;;L;i;Lr-^^^^^^^^^ 

Jo>n,ent„.r:;^f:f;^;::;'';,~^;;"nem- 

/'■  them.  also,  employers  are  exacted    o  rfr 
tiiey  want  workers.      "  '^■^I'ected  to  refer  when 


¥""  ■  W  '^Tll" 


432 


ECONOMICS 


II 


Government  exchanges  were  established  as  a  part  of 
the  general  scheme  of  dealing  with  the  question  of  unem- 
|)loynient  and  also  to  provide  an  alternative  to  the  pri- 
vate bureaus  of  the  same  kind  which  had  led  to  serious 
evils,  to  excessive  commissions  and  to  cases  of  fraud. 
The  lalwr  exchange  has,  on  the  whole,  been  shown  to  be 
a  great  benefit.  It  lias  aided  in  the  separation  of  the 
chronically  unemplo>i d  lioni  the  unemployed  workmen 
who  really  desire  employment,  and  it  has  prepared  the 
way  for  dealing  w  ith  the  former  class  by  other  methods. 

383.  A  neii:  experiment. — Steps 'have  been  taken  in 
Great  Britain,  in  contiection  with  the  labor  exchanges 
supplemented  by  boards  apjx/inted  partly  by  the  gox 
ernment  niid  partly  b\  educational  and  similar  institu- 
tions, towards  finding  suitable  emiiloyment  for  boys  and 
girls  immediately  when  they  leave  school.  This  interest- 
ing experiment  in  paternal  legislation  has  not  been  in 
force  for  a  sufficient  length  of  time  to  enable  any  but 
\ery  provisional  conclusions  to  be  arrived  at.  However, 
the  period  during  which  it  has  been  in  operation  has  been 
;i  period  of  great  activity  in  industry,  during  which  the 
need  for  assistance  in  finding  employment  has  not  been 
so  great  as  it  would  be  in  an  industrial  crisis. 

The  experiment,  however,  suggests  certain  difficulties. 
If  a  boy,  for  example,  applies  to  the  lx)ard,  or  if  iiis 
parents  apply  for  him,  even  if  the  board  is  at  once  able 
to  provide  employment,  to  what  kind  of  employment  is 
the  boy  to  be  ])ut?  His  record  at  school  affords  only 
certain  indications,  and  it  may  be  used  so  far  as  it  avails 
lut  even  with  this  record  before  it,  how  is  a  board  to 
decide  a  matter  which  must  have  been  difficult  for  the 
parents  to  decide  (otherwise  they  would  not  have  made 
the  application)  ? 

So  far  as  the  experiment  has  gone,  there  seems  to  b«  nent 


SOCIAL    LKGISLATION  433 

father  and  to  find  hm  ^  "^"^'^  "'^  t™'!^  of  his 
Prenti.  .  Z^^i^TZ^  ^^  T'  T  ^  '^^ 
deed,  indirectly  exercise  soL  ,        '"""^  '^""'  '"- 

who  has  been  dealt  J  ,  bTlT"'''"'"""'  ^'-^'  i^  «  boy 
to  an  en,ployn,ent  se  cte  ,',.^^,^  t?  "n  '"  '•^^"  ''-* 
streets,  having  Jeft  this  em ^1  "^  ''*'^*^'"S  '"  "'e 

he  may  be  seni  back  t^  ,  s  eSr"'*  "!  '"'  """  ''^-•'^' 
to  being  sent  to  jail  or  t  iTn  ?T"*  ""  ^"  alternative 
.  It  is  obvious  tha  a  Xre*;;'?"  ?T^™"*  ^•- 
involves  compulsory  iZTZf  T  "'^  ^''^  "^"^^-^ 
'"^  a  hoy  into  his  fatherTt'raJe  i  fofl'  ''T-'"'  °'  ^^"'^- 
so  far  as  it  is  effective  to  th!  "■^'^'  '*  ™"*t  lead, 

tradesn.anship.  It  •«!  tr  T.*""'""  "'  ''^'•^ditarv 
already  very  coning  «,  2?,,  '"'''""■'"'  ^'«'*-  '^^'- 
follow  the  trade  of  H^iv  S„l;    f  """"■'■*-^'  °^  3^°"t''s 

beena  voluntary  and  nit  ItZ  1      '  ""*"  """'  *'''''  ''«'* 
3«6.  "i?,^,,-,„  '.S''™j7"-^"'->'l--tice. 

bureaus  and  in  the  adoption?      t'  '"'"'"''">"  "f  lalor 

with  unemploy„.ent    ^Xl^t""^  "'  •^^''>'"^' 

make  it  clear  that  thelJi"  nTtI    ^''  ^'deavored  to 
n>ht  to  work.    The  IZ  ^     '^"^^  ""t  «dnnt  the 

-uld  involve  th^ d  ,ty  r  r  ^'^  "  "^''*  *"  -"'-k  " 
-Ploy-nnrt  for  alUpp  It  'tW  '  '"^  '*"*^  *"  «'"' 
refrained  from  adn.ittn'rtl,  ■  u.  ^"^■^'""nents  have 
rf  serious  importrce  alH,!  ut  ""''  *''*^  ''"*>•  '^  »ot 
'ion  with  res^r^t^^^^^^^  "^ '^*^'-^'a- 

can  work  will  obtai,,  «n  !?         ^^*  everyorH>  who 

^,     ^^ive  Of  the  stte'lfTsC"";? -tl  ""'"^  -^^  •-- 
T  t te  th,s  result  under  circumstance!  of  **'  ""*  «^'"'-"^e 

made  ,s  dear  that  supplen  enta"  T  "'^^  "'^^''t'-'al  pressure,  it 
I"  the  T^nite^Stl       •    l'^'   '"""  ""'"'  ^'"""w- 

to  ^  »ents  have  norb^ltdrld'hytir^  '^"^'  --- 
>'  -i-«8  "      •*  '"^"^  respective  iegisla- 


L 


434 


ECONOMICS 


tures  with  powers  to  deal  with  unemployment.  The  rea- 
son for  this  lies  in  the  fact  that  although  employment 
fluctuates  in  both  countries,  the  number  of  unemployed 
in  industrial  crises  of  the  past  has  not  been  in  excess  of 
the  local  means  of  dealing  with  the  problem,  either  by 
municipal  measures  or  by  measures  of  private  charity. 
As  the  conditions  in  America  approximate  European 
conditions,  unemployment  legislation,  as  also  other 
forms  of  social  legislation  not  now  obviously  necessary, 
may  become  so. 

387.  Unemployment.— The  medieval  system  of  ob- 
ligatory labor  and  corresponding  obligations  on  the  part 
of  the  masters  of  the  laborers  has  already  been  described. 
In  theory  each  man  had  his  place  in  medieval  society,  but 
he  was  obliged  to  remain  in  that  place,  tliough  practice 
did  not  always  conform  to  the  theory.  Obligations  were 
evaded  on  both  sides.  Cynical  injustice  and  excessive 
cruelty  often  made  hard  the  life  of  the  medieval  culti- 
vator. 

Above  all  there  was  no  freedom  of  movement,  unless 
everything  was  abandoned  by  flight.  The  modern  sys- 
tem has  given  mobility,  but  many  of  the  compensatidiis 
of  medievalism  have  disappeared.  The  legal  right  to  a 
definite  place  in  a  social  group  is  no  longer  recognized, 
and  unless  a  man  can  gain  a  footing  by  some  means  lie 
finds  himself  in  the  same  position  as  an  outlaw  with  the 
difference  that  the  outlawry  is  not  always  due  to  iiis 
own  act. 

All  governments  are  reluctant  to  encounter  the  diffi- 
culties which  would  ensue  upon  the  recognition  by  tiie 
State  of  the  right  to  employment,  but  in  all  couiitrie; 
there  exist  more  or  less  effective  measures  for  dealinj 
with  unemployment. 

The  chief  point  of  interest  durng  recent  years  ha: 


J 


P'-w-r  :rwn 


SOCUI.    LKGISLATION 
>>een  the  systematic  attempt  t«  diff       .■ 
fy  une„=p]„yed  from  tK,    ,  f  n?    "*'  *^  ~""'- 
f';rmer  c|«..s  has  been  dealt  ,72"  '""""P^"^^'^-    ^he 
"fiabor  colonies  and  in  Ho^lat  '"'"'^'  ''J^  '"^«"' 

labor  eolonies.  but  more  esltLl  "  *""""  ^^*^"*  ^^ 
"orks.  The  latter  class  hafl^  "  •  "''  """""^iP"!  •^Hef- 
Pauperism  properly  soll^:.";/',;  'T'  ''''''''  '"*" 
from  encroaching  upon  the  mp„  i  '..'^"  P'^^^^nted 
workmen  who  are  haZuaH^  '."^ '^'"^*'  '"-"^'"J^fl  f'>r 
-•"nally,  are  obli^St  seek'^rT";''.-"''  ''"*  "^o,  occj 
"f  employment  from  ,Ses:  "l  '"'""■^•^  ^''^^  '^'^  ""* 
other  like  causes.  '  '^^l'"^*'"""  of  trade  or 

«.aStXwmrtirf--'--'--e 
trade  unions  and's^e  fS.  h"  *'' r'"'"""  P-"-*-  "^ 
'-  regarded  as  one  of  thT?^H°"  fv''  ^"^  ''^^»  *" 
clear  that  the  strain  upon  an  l'"'  "'  '^'  '^*«*'^-  I*  - 
during  a  long  period  of^preiitS  tT?"  ""*  """^ 
epidemic  of  strikes.  P'^ession  oi  trade  or  during  an 


sot^tn-l 


CHAPTER   VII 


SOCIALISM 


389.  Origin  and  histor/i  of  ,vo«Vi/(*;n.— Socialism  may 
be  provls.;)nally  d«;fiiie(l  as  a  grouj)  of  ideas,  partly  of 
an  economical  aiul  partly  of  an  ethical  character,  con- 
cerning the  future  of  society.  These  ideas,  the  more 
general  aspects  of  which  will  ujjpear  from  the  following 
pages,  have  been  promulgated  and  iield  by  some  who 
have  regarded  them  as  embodying  a  new  science  of 
society  and  by  others,  with  so  much  passionate  devotion, 
that  the  group  of  ideas  is  frequently  regarded  by  them 
as  a  religion. 

The  historical  origin  of  what  is  usually  called  mod- 
ern socialism  may  be  attributed  to  the  combined  effect 
of  the  ideas  of  "political  freedom  whose  divelopmciit 
was  the  characteristic  of  the  eighteenth  century,  and  tlie 
development  of  the  large  industry  which  was  character- 
istic of  the  first  half  of  the  nineteenth  century.  On  its 
literary  side,  socialism  owed  its  origin  to  the  almost 
contemporaneous  writing  of  two  groups:  one  in  Eng- 
land and  Ireland,  represented  by  the  cotton  manufac 
turer,  Robert  Owen,  and  by  the  Irish  gentleman.  Will- 
iam  Thompson,  who  was  inspired  by  .Jeremy  Benthani 
v-hose  destructive  criticism  of  English  law  broujilit 
about  Its  revision;  and  the  other  grou))  in  Paris,  consist 
ing  of  Saint-Simon  (whose  Nniivemi  ChrintiaiiisP'.v  m- 
si)irc<!  the  social  views  of  Cai-lyle  and  Ruskin;  Fourier 
430 


r^i 


SOCI.AMS.M 


(who,se  iniluence  „,«,„  Frend, 


437 


thoiijK-lit 


(lis  greatest  IkjIw 


political  and  econoni 


lie 
rather  tl.at  of  chr,;  eie      L^  '";•"'"""*•  "'"'-^^  '"'^  -as 

Ti.e  soeiaiis„/o  t;  "a  :ir'''"';'''-  • 

contained  tJ.e  ffern.s  ,./„,    r  .T     "'"'  '■""^'''  ^ut  it 
the  subject.     It  Z,  r  *  "  '"'•'■sequent  ideas  on 

"^  the  tiKhtee^tht  ,    7^^^^^^^^^^  ^  ^7", »'-  """'"e 

•'-"■te.l  pro,luced  «,,     ,.,'"*  ""''"**'■>'  "■«•"  «'"- 
••''vi"»s  an,l  ine  ita    e    't,:,"'"^-'"  """'*^  '''^terioration 

«''-i.  be,.n  aetiveljabo  rST"'  '"'  "'"*"*'"" 
"ational  education  which  I.  .  "'"venient   for 

"  hieh  did  not  cZe  t  ?n.&."  n  «  ""  ^""'^  *™*^  '^"^ 
'"•"eteenth  century      he    '  '''"'*''"''  "^  ^^'^ 

Reform  whici  c"m;  J"  "'.'"^l^"*  f"r  Parliamentary 
'■-r  free  irnptarn  of  h :;'\'"  '''''  "'^^  '— nt 
I-ws,allaL  beda  ar;e;:yifr^^  '"  ""^  ''°-" 
practical  reformers  of  thaftime      Th         ""*''"'*"'■  ^''^ 

either  p<:s,ti^..lv  „r  nel't  i     .  f"'  ^^'^'''^  '■^"''^ted 

«l.o  Mere  .,         ]"  e  "  ^7       !?''' '"'"''''  *''«"  t^"- 

''y  -hich  tiK  .uhs;  •;?  s :"  T?  "--^--tion 

These  studies  involve,    it       .      '  f.'^*'"«"'^h^d. 
of  eomm.mities  ^rJi^^T  "'^  *''^  ^'"owth 

^■i'-.a"<lthusth    Xt;Lo Tirl  ""'^  '^^'•'  P"'"*  °f 
'^-I'.eed  to  a  forn.u  at  .  '''''^'  "■'"'^''  ^""'^  f'^en 

-turie,  came  ;"       ^v^  ed" '^'?;^""^  "'"'  ^'^'^^-t'' 

•'-ore  or  less  settled  cl:;;j'—--tf^ 


438 


ECONOMICS 


setitially,  not  merely  a  pulitical  mechanism  by  means  (if 
which  sundry  |)()litical  ciiils  nli^ht  i)c  served,  Init  that  it 
was  related  also  to  the  old  idea  of  a  community  in  the 
respect  that  it  vnus  the  orj^an  of  a  (jroup  of  persons 
whose  mutual  interests  bound  them  together,  the  essence 
of  iiiis  unity  being  the  mutuality  of  the  social  relations. 

The  community  thus  ajipeared  as  a  spontaneous  so- 
cial organization  the  end  of  which  was  the  interest  of  its 
members  in  all  senses,  and  the  state  apjx'iired  as  the 
indissociable  organ  of  this  community  by  means  of 
which  the  various  ends  of  the  community  might  be 
served.  The  state  came  to  be  no  longer  represented 
characteristically  by  a  policeman,  a  soldier  and  a  judgi-. 
but  rather  by  the  medical  officer  of  health,  the  post- 
master and  the  fireman.  In  other  words,  emphasis 
came  to  be  laid  rather  upon  the  heljiful  functions  of  tht 
State  than  upon  its  purely  repressive  and  regulati\e 
functions.  The  former  conception  of  the  state  as  a 
merely  negative  regulator  has,  in  effect,  passed  away, 
and  the  criticisms  upon  the  state  which  were  based  upon 
that  conception,  in  so  far  as  that  conception  has  decayed, 
have  come  to  be  no  longer  applicable. 

390.  Progrens  a  result  of  circumstances. — The  vari- 
ous stages  in  the  process  have  not,  however,  been  acconi- 
j)lished  to  any  material  extent  through  the  pressure  of 
propaganda,  but  rather  through  the  pressure  of  circum- 
stances. Indeed,  the  propagandists  were  often  the  last 
to  realize  that  an  important  step  toward  their  ideal  State 
had  already  been  made,  and  they  were  apt  to  display 
indifference  to  such  steps  and  even  sometimes  to  resist 
them.  The  German  socialists,  for  example,  were  at  the 
beginning  either  indifferent  or  hostile  to  the  state  insiir 
ance  policy  of  Bismarck.  It  was  only  after  it  had  been 
in  operation  for  a  number  of  years  that  they  were  pre- 


430 

""'ication  of  social ,  .C«  in  '  '  "  ""^'^'^"y  "" 
counter  disa.lvantaL  Zlv  If  *"""•  ^"*«'n 
advantage  which  the  chanLT  ^•'^.''"*  '«"'"»'  t''*' 
ea«.  for  the  in.hvilal  S  tfl'7  "''•  ^'^^  «''"^*'^ 
maniferte,!  may  be  Iccomn        ,""'  "PP*"""  »"  '"♦ve 

extent  that  the  S.vLual  ^  .  '  'I  '"""'"^  *°  ""^^  «" 
•ndifferent  to  Pe^lran  ^^^.^  St^^^^ 
have  noticed,  even  in  new  i  !."">•  ^"^e  observers 
-hieh  they  attribute  toTheXll' J  ^"'  "'  r"""- 
-option  of  wide  powers  bv  Sfst^  T."  "'  *''  "" 
"Wy  a  net  balance  of  a,lv»nt„         u         ^'"''"^  '*  P'of" 

-dents  are  ta  J„1:;' "a      S^r'^jrca  "f  ^'^^"^ 
posed  that  the  process  of  ,1^^!  """"*  ^  ""P- 

can  it  be  predicfedlow  lo.  L  H  "^'"'"*  "  "*  ""  «"'''  -«• 

Having  sketchedXfy  tlTth^'^'r  '"''■ 
«)cial  progress  let  „c  „ot         ?!?^  *''^  incidents  of 

'ion  ofs^i^:::^;^;^  -''-*  ^^  the  .la- 

fully  developed  here    on  v  th       T.  '"  *^'"'"°*  ^^ 

^'■ven.    Spedal  tre"  i;^!^.  "k"    "'^  1  *''^'"  ^^  ''^ 
of  them.  """"^'^  ''^  consulted  upon  each 

tivf  i  ^l'"'^fi'''ti^  of  socialist  doctrines     Tr. 

'"e  of  the  hstorieal  orH^,  „<•  ti,  .     ,  '^"^*-— JiTespec- 

--..^2y^--^W.  these 

"-  laborer  has  the    .th?:;'?.'  *''«\t''erefore. 
J'ro,luce.  ^         *°   ^''^   ^'"'l*--   of   the 


MICROCOfY   lESOlUTION   TEST  CHART 

(ANSI  ond  ISO  TEST  CHAST  No   2| 


III  1.0    Irl^  i^ 
"'^  ?  [f  IS 

II  I.I      I  •«  ilM 


1125  i  1.4 


1.6 


gg*.  '65J   East    Main    Street 

rJ!=         (715)    *aZ  -  0300  -  Phon« 
^SSS        <"E)  zee-  5989 -Fo. 


440 


FXONOMICS 


(b.)  Those  which  arc  based  upon  denial  of  any 
"rights"  of  individual  property,  regarding  the  com- 
munity as  the  sole  custodian  of  the  "rights." 

(c.)  Those  which  are  based  upon  the  view  of  his- 
tory which  regards  it  as  chiefly  a  record  of  the 
struggle  of  classes,  the  earlier  struggle  having  been 
conducted  against  the  aristocracy  by  the  middle  class 
— the  class  intermediate  between  the  large  owner  of 
property  and  the  owners  of  no  property  or  the  prole- 
tariat— the  later  struggle  being  between  the  middle 
c'ass  and  the  proletariat.  Acording  to  this  doctrine 
the  middle  class  has  now  attained  political  preponder- 
ance in  all  countries  by  wresting  it  from  the  land- 
owning class.  What  is  called  democracy  is  thus  really 
the  rule  of  the  middle  class.  According  to  this  doc- 
trine, also  the  struggle  for  political  and  economic 
power,  which  is  now  going  on,  is  between  the  prole- 
tariat or  non-propertied  class  and  the  middle  class. 
Those  who  entertain  this  view  lay  great  stress  upon 
the  inevitability  of  political  evolution,  and  they  regard 
the  victory  of  the  proletariat  as  quite  certain,  the 
period  of  the  victory  alone  being  undiscoverable. 

(d.)  Those  which  are  based  upon  the  idea  that  by 
means  of  the  spreading  of  education,  and  of  the 
steady  application  of  legislation  as  well  as  by  means 
of  voluntary  agencies  of  many  kinds,  the  principles 
of  brotherhood  and  altruism  or  self-regardlessness 
will  become  so  dominant  that  there  will  arrive  a 
society  in  which  the  only  competition  will  be  competi- 
tion in  well-doing. 

(e.)  Those  which  are  confined  to  the  idea  that  the 
nation  should  possess  and  retain  under  its  own  ad- 
ministration all  the  means  of  production  and  tliat 
every  one  being  offered  equally  an  opportunity  to 


SOCIALISM 


441 


to  group  then^selves  sponta        1  :'      i,  td,"';'  '^■" 

those  who  exploit  the  labor  of  others  ^ 

392.  Ewplanation  of  socialist  doctrines -It  h  h.» 
to  associate  the  complex  exnressi,.,.  ■  r    "J'^"^'' 

misunderstood.     For  the  .nk^  7  •   ^'"^'^^'  ''^ 

(a.)   The  .loctrine  that  labor  is  the  sole  source  of 

Thompson  in  his  'X«wi.l  ^^^J  bt'otl  "^ 

peciallybyKarlMarx.whopi,;:!;;^;::';; 


442 


ECONOMICS 


gestion  from  Thompson,  although  he  worked  out  the 
doctrine  in  greater  detail.' 

(b.)  This  doctrine  is  poinilarly  ktiown  as  commun- 
ism. Its  chief  advocates  of  it  in  moili;rn  times  ha\o 
been  Proudlion  and  Prince  Kropotkin.  The  best 
statement  of  the  doctrine  is  to  be  found  in  the  numer- 
ous pamphlets  of  the  latter. 

(c.)  The  materialistic  view  of  history  was  stated 
by  Montesquieu,  but  it  was  fully  developed  and  con- 
nected with  the  view  of  the  class  struggle  by  Kail 
jMarx  who,  indeed,  seems  to  have  regarded  himself 
as  the  originator  of  both  these  views.  Statements  of 
them  will  be  found  in  his  works. 

(d.)  This  is  the  view  of  large  groups  in  Europe 
and  America  who  are  customarily  described  as  Chris- 
tian Socialists;  similar  views  are  held  in  Germany  and 
France  by  academic  socialists. 

(e.)  Many  who  call  themselves  socialists,  or  more 
accurately  coUectivists,  hold  the  views  described  under 
this  head.  They  are  not  interested  in  the  class 
struggle  and  would,  indeed,  regard  with  complacency 
a  coUectivist  state  in  which  the  dominant  political 
class  would  consist  of  those  annuitants  who  had  sur- 
rendered their  enterprises  to  the  state  in  return  for 
perpetual  annuities. 

(f.)  "Direct  action"  is  advocated  as  a  policy  by  the 
syndicalists  who  regard  the  workers  as  the  only  right- 
ful possessors  of  the  means  of  prodiiction  and  "ho 
suggest  that  factories,  mines,  etc.,  should  be  taken  in 
detail,  by  force  if  necessary.  If  they  cannot  be  taken, 
they  may  be  destroyed  in  order  to  bring  the  capitalisti 
system  to  an  empasse. 

*  In  connection  with  this  doctrine  Marx's  "Capital  '*  should  be  read,  altlioupl 
it  is  a  difficult  book  for  any  but  an  anient  student,  with  some  preparation  in  1"|.t| 
ami  in  the  history  of  economic  theory. 


resent  a  reaction  a«aLt  ot  !,  '  .  '  "'""'  "■'"''- 
state,  but  asainst  atZll  ''^^  ""  ""t"^'atic 

resented,  for  exTrnp  e  t  e  'V"  '"'^'  '""^■"""'*-  "'^ 
Karl  Mirx  wasT  i;"*''""*'^  '^''^""^"t  "^  "'-•'' 
tional  WorkZllJ    !    ■^?"'""'*  '"  *''^  ^"t^rna- 

t"collecthsn"Sn  tt  r'\*'""'  ''"'  ''^  "''J-t'^J 

Ploitation  nf  t.      *'^^ff'"""""'''  that  it  involved  the  ex- 

e.>.itation^r£S-;-j^:2™ 

name  of  socialism,  vary  wi  eh  "'''""'"^  *''"  ^""^^'•'■''' 
have  one  essential  ]Zl-n':^^iTrT  T''''  ^'"^-^' 
the  assumption  that  human^T       .^''^^  «»  >•«*  "P"" 

c-ptibleofimprovemenrb^^-  "  '  Vr'  ""'"'^'y  ^"^- 
This  assumptfon  herj  wLl  /^  I  ■  [rd""  "^ 
sions  on  soc ml  proeress  in  tJ,  •  v!  ,  "  "'^  '^^^  -'s- 
has  ever  since  bTenTJten  tor"^  ^l'"'  "'""'-^ '  ""''  '* 
socialistic  doctrines.  Suln  oM  "TJ-"™  '"  ''" 
ammption  is  b.-.nd  ourfield  '  ""'"'^^  "''  ""'^ 

^"^-Xt^are'r^-^-J-neof 
either  with  onf^^od'orlt;?;;"'^^  """^  '^  ''™^^'^ 

•>ra"i:ra£\:nirTr't  '''^  ''^'^  --'-  of 

!-eoutline;t-^-^M-(c)^. 


iU 


KCONOMICS 


uul  iiiciins  or  it  may  be  iitttinptcd  !)>•  violent  revoliitioi 
iiry  nicuiis  with  ii  view  to  its  iiiiint-diiiti;  cstiil)lisliiiifii 
]Miirx  was  not  ol)li\ioiis  to  tlic  fact  tliat  tiie  organi/.atid 
of  a  sinfTJc  socialist  state  in  his  sense,  while  all  othei 
remained  in  the  capitalist  phase,  would  he  an  affair  ( 
great  difficnlty,  and  he,  therefore,  urged  the  need  ( 
an  international  movement  in  order  that  all  of  the  ii 
dustrial  nations  should  be  brought  to  the  point  of  adop 
iiig  state  socialism  simultaneously.  His  watchwor 
therefore,  was,  "^^'age  workers  of  all  nations,  unitel" 
While  snuill  international  groups  have  lieen  form( 
from  time  to  time,  and  while  attempts  have  been  ma( 
to  turn  international  peace  movements  into  directioi 
favorable  to  international  organization  of  labor,  the 
attempts  have  not  been  conspicuously  successful.  T 
deed,  the  socialist  parties  in  Germany  and  France  a 
strongly  national.  Their  members  are  Germans  ai 
Frenchmen  first  and  socialists  afterwards.  Intern 
tiotial  socialist  congresses  notwithstanding,  internatioii 
socialism  does  not  seem  to  have  increased  in  *'orce  durii 
the  past  forty  years. 

The  present  position  of  revolutionary  socialism, 
the  sense  of  Marxists'  collectivism,  may  be  put  brie) 
thus.  There  is,  to  begin  with,  the  party  of  devo 
Marxists  for  whom  "Capital"  is  a  sacred  book,  and  w 
read  the  writings  of  ISIarx  in  a  dogmatic  and  uncritit 
si)irit.  Then  there  are  the  Revisionists  or  Marxis 
who,  in  general,  believe  the  credo  of  Marxism,  but  w 
are  disposei'  to  make  critical  emendations.  They  ii 
not  convinced,  for  example,  that  Marx's  doctrine  tl 
every  nation  must  pass  through  these  phases,  the  ag 
cultural,  the  capitalist  industrial,  and  the  socialist  i 
(l.istrial,  is  valid  under  all  circumstances.  The  dispu' 
between  these  two  jiarties  in  the  Marxist  camp  hii 


SOCIALISM  ^^. 

n.r  some  years  ,K-c,„,ii.,l  tlidr  .nin.ls  i„  ,.«-,„„lito  and 
so.net,na.s  futile  .liseussions,  „„.,  thev  Iw.o  ,,      k" 
t  ^.r  e„er«.es      The  suecess  of  syndicalis.n  „  „v  tit 
tributed  largely  to  tlia*  faet. 

he  Marxist  ,mra,l,se  secncl  to  he  «l«avs  heeo.ninK  n.ore 

Zh-rrh"""/"-^*""  ''''"•■  '•"■"•^--- ■""''•-•  '•^• 

Znl-    T""*  *'"  '"'■'""'^'  l'r"P..K»n.h.  as  also  J.ave 
I  ances  of  wages  ar.d  ,.e„er«l  hrisk-.ess  of  e-nplovn-ent. 

•    ieh  n.  .     -'r/'"'  '''''''  ''^■^•"•"^'  t'"-''-'^^  '^  «> '"  <>I'er,.d 
Mch  matenal  for  agitation."     The  soeialist  n.oven.ent 

!"!  '"  ^"'""r  "''.'•  *'"•■  -""-■  P«rti«  have  developed. 

,'!',  "^S""'.    '"  ''"^•'"^^■■^  ''^*"<^^^-"  <"-t'>"'I"^  Marxists 
« nd  the  Revsionists  or  other  newer  groups  hav    ^a 

irih      wT'lf'^^     Vet,it„„yUapsfai:jX 
said  that  hy  far  the  larger  nuniher  of  reeent  for-i.rn 
.mmigrants  helong  to  one  or  another  of  the  s  ei'lS 
groups,  and  that  any  industrial  disturbanee  „  ii      , 
.only  reveal  a   fonnidahle  latent  foree  in  the  soei  !    t 

39.  T"/"'™"-^-  '"'  ^''^'^-^  •"«>•  ^^  viewed 
S9i. Siffrn/icancc  of  the  vwveinent.-h^  general    it 
njst  be  allowed  that  socialism  has  done  „,u  'i, 

tellee  uahz.e  the  workingman.     The  reader  even  of    -e 

ZLl      n      [        """*  ^'""'''  "'""*>•  "»'^1'  af'ove  the 

rage.    Constant  assertion  of  the  elass  struggle  and  i 
■stence  upon  "class  consciousness"  has  had  the  effec     f 
nnging  many  workingmen  to  the  position    I  at  kn  ,w 

fof3;V7""''r '"  '"'""^^  »''^  exclusive ;:;. 

r,  L  >      ,  P""''"'-  ■"""'•  '"'"'etimes  laboring  und Ir 

stand  the  difficult  questions  in  which  the  relations  of 


446 


KCONO.MICS 


cupital  and  labor  iiir  involved.  It  is  very  dear  that 
those  who  have  the  adiiiiiiistratioii  of  labor  must  he, 
at  least,  as  well  informed. 


ti. 

[tr 

I  tic 


of 

S0( 


QUIX  QUESTIONS 

I  'J'/ic  numbers  rffrr  //.  //.  .  i 

rcjer  to  the  numbered  welun.s  in  the 

lext) 

TART  I:  niODUCTIO.V 

CHAPTER   I 

1-  What  is  the  science  of  economics? 

i.D,sc„ss  the  social  aspect  of  economics 
In.sine^st'nV''^  ^^"'^  "'  '""'""'-  ""I-tant  to  the 
^.  J  .What  is  the  economic  side  of  governmental  ac- 

trial  societies  r  ""'^^'^^^*™«*-'l '"  individualistic  indul 

''--^S^:s^E:f-"^-----di. 

wial  mstability  affect  tlie  Pr-n,,.  P'^^^^sses?    How  does 
s    uri    i  ■     /  ""<-i^i  iiie  economic  processoj' 
«.  Wha  .s  the  purpose  of  the  economic     :  esses ^ 
10  T'"'''^"^-*  "^y  "-e  "national  dividen  rT- 
^i^J^SZ^^^f-- ~P-n  ^i- 
447 


HH 


r.coNOMic's 


CHAPTER    11 


11.  Define  Prodiiftion. 

12.  Of  wliiit  iiiiportiiiicv  is  the  system  of  prodiietion 
to  the  nutioii  as  ii  wliole^ 

l.'J.  What  are  tiie  charaeteristies  of  simple  production  ? 
llhistrate. 

14.  What  are  the  recjuisitcs  of  simple  production  f 
Why  is  it  sometimes  necessary  to  restrict  access  to  r.iw 
materials? 

15.  Di.scuss  the  division  of  labor  in  simple  production. 
10.  What  are  the  characteristics  of  complcjc  produc- 
tion?   What  is  the  function  of  the  instrument? 

17.  What  requisites  appear  in  complex  production 
that  are  not  present  in  simple  production? 

J  8.  Is  it  possible  to  determine  the  owner  of  the  fin- 
ished product  ?    If  so,  how  ? 


ciiaptp:u  III 

19.  Why  is  it  that  ideal  economic  justice  is  unattain- 
able? 

20.  Would  it  be  just  to  allocate  the  whole  of  the  prod- 
uct to  labor?     If  not,  wiiy? 

21.  What  are  the  factors  of  complex  production? 
AVhy  is  each  of  them  necessary? 

22.  What  is  meant  by  fixed  and  by  circulating  ca])i 
tal? 

23.  What  are  the  sources  of  capital? 

24.  Describe  the  functions  of  each  of  the  contiili 
utories  to  production. 

23.  Give  an  account  of  the  law  of  increasing  re- 
turns. 


re- 


Ql'K    Wl  ESTIONS  ^g 

«<•   wnat  conditions  must  be  present  fnr  ti.« 
ful  operat  on  of  tlie  Inw  ,.*•  ■       '"^^'"^'"  '"r  "le  success- 
28    Desor  h^  ♦  '""easing  returns? 

CHAPTER    IV 

of  trl^Sr^tio^f  ™™^  •^^-*^  "^  -P-ements 
81.  Is  transportation  wasteful?     Why? 

CHAPTER   V 

38"  Whaf  te't^^T  '"  ^'^  P'"*^^'^  of  production, 
or  LlteTtageV''"^"^*^™"-  °^  ^'^  Exploitative 

«^^:;^rrLicr^-^-^--'- 

c— 1— » 


il 


4S0 


KCONOMirS 


40.  What  were  the  land  owners'  priviloni-s  niid  ihities 
under  compulsory  cultivation  if  In  wliat  country  di<l 
free  hired  labor  first  appear? 

41.  Account  for  the  chaii^c  from  the  system  of  bond- 
age to  the  system  of  free  hired  lalK)r.  ^Vecount  for  the 
commercialization  of  land  ownershij). 

42.  What  system  of  land  ownership  preceded  the 
medieval  and  modern  systems?    Kx])luin  it. 

43.  IIow  did  the  traditional  objection  to  the  sale  ol' 
land  arise  in  certain  European  Countries? 

44.  \Vhat  are  the  relative  advantages  of  large  and 
small  farms? 

45.  Siiow  how  the  increased  nobility  of  lalxir  due  tn 
the  cessation  of  bondage  facilitated  the  growth  of  in- 
dustry. 

40.  Descril)e  the  effect  upon  European  agricidture  i 
the  development  of  wheat  cidtivation  in  America. 

47.  Account  for  the  fact  that  in  Great  Britain  tin 
price  of  land  was  maintained  while  rents  fell. 

48.  Describe  the  system  of  metayer  tenancies.  Give 
a  sketch  of  the  condition  of  landowning  in  Europe. 

49.  Why  is  the  production  of  wheat  assuming  groat 
importance?  Which  are  the  great  wheat-growing  coiiti- 
tries? 

30.  Account  for  the  great  increase  in  the  cultivation 
of  wheat  in  Russia  and  in  the  Argentine. 


CHAPTER   VI 


51.  What  causes  have  resulted  in  the  change  of  tlie 
■wheat-growing  areas  in  the  United  States  and  Canada' 

52.  Why  are  there  specialist  wheat  farmers?    Wlia' 
are  the  economic  cfTccts  of  this  specialization? 


M.  \Vlivi 


r.i 


WIIZ  QIKS'Jioxs 

zi:::':;^'.:^'"*"^-'f'-'yinuno,.ii.. 


•54.    ^*ll"K>K-i.lti.ral«.nniiu..it 
"IIS  stuti'iiicnt 


"(  nlmMlf(lc■tllrin^^.  '"mmiff  w,tli  tlic  Im/nrds 

*''""ti.,.o;nL::';:n;;i;:;:;!''^''---'.....iation 

•listniife  from  the  r,.nt,.,.„     c    "^ '",'■"."""" •     How  dins 
.'"  farn.  nK-rt^;.;"  ^"''••''"*'""  ""■^•^'  "-  -'.• 

noS;„^f  i.  the  f„rn.i„«  situatu...  I„  tl.  Canadian 

formal  or^::!.''''"'''  '^"'"''"''''''^  ^-''*  -"«>"* 
<i.'?"«trC::^r-^-^'''^-'^*--'-ssar,„s 

<i«.  ^^'llat  considerations  ninst  tlip  f„.         i 
"'■"<i  in  marketing,  his  wheat  crop'  '^''^^'  '" 

C.-   How  does  tl,e  Unmer  market  his  produce^ 

(.8.  How  does  grading  affect  the  price? 


452 


ECONOMICS 


C9.  Trace  the  course  of  wheat  from  the  local  elevator 
to  the  market. 

70.  How  is  the  crop  movement  financed? 

71.  What  are  the  advantages  and  disadvantages  of 
speculation  by  the  farmer  in  prain  grown  by  himself? 
Discuss  this  (1)  from  the  point  of  view  of  the  farmer; 
(2)   From  the  point  of  view  of  the  consumer. 

72.  Account  for  the  diminution  of  ranching  in  the 
prame  provinces  of  Ct.nada. 


CHAPTER   VII 


73.  Why  is  capital  sometimes  diverted  into  gold  min- 
ing, in  excess  of  possible  production? 

74.  Give  an  account  of  the  chief  incidents  in  the  his- 
tory of  the  Rand  mines  in  South  Africa. 

75.  W^hat  are  the  reasons  for  the  relatively  slow  de- 
velopment of  gold  mming  in  British  Columbia? 

76.  Trace  the  changes  in  the  value  of  silver  expressed 
in  the  term  of  gold. 

77.  AVhat  are  the  principal  causes  for  the  fall  in  the 
value  of  silver  in  terms  of  gold  ? 

78.  Give  an  outline  of  the  legislation  of  the  United 
States  on  the  silver  question. 

79.  What  has  been  the  effect  of  this  legislation? 

80.  Indicate  the  effect  on  the  demand  for  commodities 
which  enter  into  ordinary  consumption  of  a  new  mining 
camp. 

81.  From  what  coim tries  has  the  labor  and  capital 
used  in  copper  mining  been  drawn? 

82.  Where  are  the  large  nickel  mines? 

83.  Describe  the  early  developments  in  iron  mining. 


QUIZ   QUESTIONS  453 

84.  What  were  the  effects  of  the  war  of  1812  1^  I 

i-eace  of  1815  on  iron  profhictfon  ? 
83.  What  are  the  chief  i-easoiw  f„r  fi,«> 

C'L^""  .he  *.,,o„„,e„„  „,  „„  i„„  i  J„«;'- 

o».   What  are  the  caiisp"!  nf  tu^  ■    v 

of  coal  mining  in  tl,e  I  nTted  St  .  ''"""'""^"l  ""^th"<J« 
those  in  use  in  Europe/  ^'''''  ''  '^"'"P^^'l  '»^^^ 


CHAPTER    VIII 

^  JJ.^Deseribe  the  function  of  the  manufacturing  em- 

ealStir:fStZtH:s.~^.*'''^,--'l-nces  of  lo- 
in, bonuses  l^^i^^r^^^^SZ^ ''^- 
W.  Give  a  llet  ,,f  M      I    -1         "'oustnal  enterprises. 

^or  anTndLtS  :^/':;£''^^"*^  ■"  ^'^^^'^^^  «  'o-h'ty 
verstcfarr  ''^  '''  ^^°^™"'*>'  ^^  ^"''-^-^  "f  a  di- 
prolctfr '""  ""^  °'  ""^  ™P-*-*  —  of  over- 
97.  Why  is  it  that  a  certain  proportion  must  he  oh- 


il\ 


[ill 


454 


ECONOMICS 


served  between  the  production  of  high  durable  but  there- 
fore not  immediately  wholly  consumable  goods  and  that 
of  goods  that  are  immediately  wholly  consumable? 

98.  What  are  the  economic  effects  of  over-production 
of  railways?    Mention  some  conspicuous  instances. 


CHAPTER   IX 


99.  Is  over-production  of  agricultural  products  pos- 
sible? 

100.  Is  marketing  a  phase  of  production? 

101.  Does  the  making  of  a  favorable  bargain  by  one 
of  the  parties  to  a  transaction  increase  the  wealth  of  a 
nation  to  which  both  parties  belong? 

102.  Is  "exploitative  bargaining"  injurious  to  the 
"national  dividend"? 

103.  Is  advertising  economically  justifiable? 

104.  Under  what  conditions  may  advertising  benefit 
the  consumer?  Illustrate  the  laws  of  increasing  and  di- 
minishing returns  from  the  practice  of  advertising. 

105.  Discuss  the  economic  justification  of  the  middle- 
man. 

106.  What  are  some  of  the  implications  of  the  growth 
of  distributive  co-operation? 

107.  Describe  the  conditions  in  seasonal  trades.  Illus- 
trate. What  would  be  the  economic  effect  of  a  charitable 
endowment  for  the  purpose  of  maintaining  tradesmen  in 
seasonal  trades  during  the  period  when  they  are  not  em- 
ployed? 


QUIZ   QUESTIONS  ^^^ 


PART  II:  EXCHANGE 
CHAPTER  I 

J*^:£::^^:^.°'•?^-r"•■•'=°"■■ 


CHAPTER 


II 


113.  What  are  the  foundations  of  value?    Vvnl  • 
the   expressions    "value  in   use"  ami    "    i       •  ^ "'" 
change."  '     """     ^a'ue   in   ex- 

.^^114.  What  are  the  most  conspicuous  criteria  of  util- 

117.  Ilhistrate  disutility 

•neant  by  the  word  commoc^Hv  ^  "'"  ^'"'*  '" 

JS'  W ''"*i'  *"'""*  ''y  "  ^^'^  gift  «f  nature? 


456 


ECONOMICS 


122.  Discuss  the  relation  between  supply  and  demand. 
What  are  the  immediate  and  remoter  effects  of  an  in- 
creased demand  upon  the  supply  of  a  commodity  the 
raw  material  of  which  is  abundant? 

123.  What  is  meant  by  the  "law  of  substitution"? 


CHAPTER   III 

124.  Explain  the  different  senses  in  which  the  word 
market  may  be  used. 

125.  Describe  the  market  at  Nijni  Novgorod. 

126.  Do  safe  routes  benefit  a  market? 

127.  Name  well-known  modern  and  ancient  market 
places. 

128.  Give  .some  examples  of  local  markets.  Narrate 
from  personal  observation  the  course  of  affairs  in  some 
local  market. 

129.  Describe  the  characteristic  features  of  the  market 
in  a  general  sense. 

130.  What  should  we  consider  in  a  study  of  the  mar- 
ket? 

181.  Indicate  the  groups  of  which  a  market  is  com- 
posed. 

132.  How  is  the  market  price  arrived  at  ?  Under  what 
circumstances  do  prices  fall  in  a  market?  Under  what 
circumstances  do  prices  rise  in  a  market? 

133.  Account  for  the  influences  of  one  n.-rket  upon 
another. 

CHAPTER   IV 

134.  Discuss  the  medieval  expression  "a  just  price." 

135.  Are  customary  prices  and  variations  in  prices  in- 
consistent?   Explain. 


Jim 


QUIZ   QUESTIONS  4^^ 

sZlZ'll'^fr'  'y  ^"^  "P-on  "Money  i.  the 

J^lZ^X.Z'l't"'  .f  "'^  -'«ti-  values  of 
in  the  quantities  of  ?»;  ^^'''^.'''^''^  «'«=  effects  of  chan.^es 
currency  puiS:;'  ^"^  P'—  -etals  available  £ 

Latin  Union?  *'^  *''^  '"fluence  of  the 

140.  What  Ts  btetall'i^  -ternationnl  exchanges? 
metallism  be  a  LttI  oT'"'  ^^'^^  «"-*  "^i- 
What  is  the  objert  of  bil/'!"'""*"'"'''   "^'-eement? 


CHAPTER   V 


pritsVll^Sj"--/"  clin,at.^^^  ^'^-ges  affect 
Je«.eney  in  the  wheaT^T  T^  wl  T''- '''  " 
fluence  supply  and  demand?  Wh"!  Ll  ''  ""  '*  '"■ 
effects  of  an  abundant  harvest?  '•""'  °^  ^''^ 

'*•    What  effects  ZstllZo^T  T''"''  '"^''^'y  divert 
of  foodstuffs?    DiscriS/be"   ten  dT'  T  '"'^^'^ 

143.  Account  for  the  varvfnrrnfl  '"*  ""*"• 

«ents  upon  prices  ^  ^   "''""""^  °f  Political 

Cst;tduc^!r"^  "'^  '•"«--  upon  prices  of 


458 


ECONOMICS 


the  cost  of  production?   What  is  meant  by  the  marginal 
manufacturer? 

146.  Discuss  the  action  of  the  law  of  substitution  m 
relation  to  the  process  of  these. 

147.  Explain  the  expression  "complementary  groups 
of  commodities." 

148.  Under  what  conditions  does  an  increase  in  the 
population  result  in  an  increase  in  demand? 

149.  What  are  the  causes  of  the  concentration  of 
population  in  urban  centers? 

150.  What  are  the  causes  of  rural  depopulation? 

151.  Discuss  the  economic  effects  of  migration  in  re- 
lation to  prices. 

152.  How  do  changes  in  the  standard  of  comfort 
affect  demand?  How  has  increased  demand  reacted 
upon  the  price  of  tea?  What  are  the  chief  causes  of  the 
increase  in  the  price  of  beef? 

153.  Give  illustrations  of  the  manner  in  which  the 
change  of  fashion  has  influenced  pri>.v!i. 


CHAPTER   VI 

154.  What  is  the  role  of  competition  in  the  new  de- 
termination of  prices? 

155.  Explain  the  expression  "monopoly." 

156.  Does  a  monopoly  of  supply  necessarily  mean  an 
excessive  price?    What  is  the  monopoly  price? 

157.  Distinguish  between  a  legal  monopoly  and  an 
attempt  at  commercial  monopoly. 

158.  What  contingencies  affect  the  exercise  of  mo- 
nopolies? How  does  the  law  of  substitution  affect  tiie 
exercise  of  monopolies? 

159.  Give  a  sketch  'f  the  history  of  the  monopoly  ui 


QUIZ   Ql-ESTIOXS  455 

Of":  kij;;::r"  """"""•  -'  "»"■«  •  -«r<"^ 

161.  Discuss  the  operation  of  a  "trust  " 

162.  Are  monopoly  prices  excessive  ? 

168.  What  is  the  reason  for  the  attiti,H»  «f       i  r 
aversion  from  commercial  combinations?  °'  P"'''' 

164.  Examine  the  statement  "landowning  is  natu- 
•  monopoly."    Why  is  land  hard  to  monopoi  '    S" 
WhatT:       .*!'  r  "^  "'  eommerciali.at'ion"f  land 

65.  What  ,s  the  h.story  of  fluctuation  in  land  prices  ^ 

167.  Describe  the  connection  between  the  price  of 
land  and  the  rate  of  interest  and  account  fir  it.'  ' 

caused  bv  tTe  "  "''"'^'  '"  ^-^'-phical  relations 

caused  by  the  openmg  up  of  the  new  routes  has  affected 

ettects  of  the  openmg  of  the  Panama  Canal. 
CHAPTER   VII 

|ti^::Sirr:^::^'^-^-'--«— 

lafFcrtprYcr?'"''  ^'^  '^""'*'*''  "'  "'""^-^  '■"  ^'^^J"*-" 
\prZl]  ^^^^^  '"  ^^'  '^'''  "^  I'"'«"'^''l  Payments  on 

rCte^'nri'iied.^'"""^  ''""^'^  ^^'^*'^'"- "-  - 

173.  Wiiat  is  meant  by  the  "autumnal  drain  of  gold"  ? 


460 


ECONOMICS 


174.  Explain  the  expression  "velocity  of  return  capi- 

*"  ns  What  is  the  relation  of  gold  and  ''Hver  to  credit? 
What  have  been  effects  of  large  new  increments  of  goUH 
170  How  may  customs  duties  upon  imports  affect 
the  amount  of  goW  in  circulation?  How  may  differen- 
tial railway  rates  be  employed  to  mcrea^  a  gold  re 
serve?    What  is  meant  by  "gold  reserves  i 

177.  Define  fiduciary  currency.  «,..„;„,„ 

178.  What  are  the  limits  of  the  issue  of  a  fiduciary 

T;.  What  is  the  effect  upon  prices  of  commodities 
of  an  excessive  issue  of  fiduciary  currency?  What  is 
1  effec  upon  the  character  of  the  money  m  cir^- 
lation  when  excessive  issues  of  fiduciary  currency  take 

^^Tso.  What  are  the  chief  constituents  of  international 

^tsT  What  are  the  chief  causes  of  credit  crises? 
182    Why  are  banking  reserves  necessary? 
83-.  Describe  the  means  which  may  be  taken  to  avo. 
credit  crimes.    Can  gold  reserves  be  excessive?    What  .s 
the  effect  of  hoarding  gold? 

CHAPTER  VIII 

184.  Explain  the  expression  "demonetization  of  sH- 
ver?  What  is  the  influence  exerted  upon  prices  of  fa 
cilities  for  obtaining  credit?  •     »     An 

185.  How  does  an  excise  duty  affect  the  price?    An 

import  duty*  dUcovered 

186.  Upon  what  principles  can  it  be  discovere 
.vhcther  the  consumer  or  the  foreign  producer  bear  t 
burden  of  an  import  duty?    What  conditions  ought  t. 


QUIZ   QUESTIONS 


461 


be  kept  in  mind  in  investigating  the  economic  effects 
of  an  import  duty  ? 

187.  What  is  the  general  effect  upon  prices  of  specu- 
lation?   What  is  the  justification  of  wheat  "futures"? 

188.  Examine  the  provision  regarding  bank  liens 
upon  wheat  in  the  Canadian  Bank  Act,  1913.  Under 
what  circumstances  may  a  "corner"  in  wheat  be  success- 
fully carried  out? 

180.  Examine  the  statement  that  if  there  were  some 
other  "measuring  rod"  than  gold  or  silver,  there  would 
be  fewer  fluctuations  of  prices  of  commodities. 

190.  Is  a  general  advance  of  prices  a  usual  phenom- 
enon? Discuss.  What  is  the  relation  between  prices 
and  wages? 

191.  State  the  theory  of  trade  cycles  and  discuss  its 
validity. 

192.  Why  is  distribution  necessary?  Is  distribution 
necessary  under  a  system  of  simple  production? 


An 


ECONOMICS 


PART   III:    DISTRIBUTION 


CHAPTER   I 

198.  Why  is  "ideal  justice"  impossible  of  realization? 

J 04.  If  every  one  were  rewarded  with  the  whole  value 

of  his  product,  would  there  be  equality  of  possession? 

195.  Communism  is  the  only  system  in  which  complete 
equality  is  possible.    Discuss  this  statement. 

196.  Show  the  relation  between  the  factors  of  pro- 
duction and  the  shares  in  the  value  of  the  product.  De- 
scribe the  medieval  practice  in  distribution  and  discuss 
its  advantages  and  disadvantages. 

197.  Describe  the  influence  of  the  guilds  upon  in- 
dustrial regulation. 

198.  Indicate  some  of  tlie  consequences  of  the  decay 
of  the  medieval  system  of  control.  Account  for  the  rise 
of  the  class  of  free  hirable  laborers  and  describe  the  effect 
of  this  upon  wages. 

199.  Account  for  the  emergence  of  competition.  De- 
scribe some  of  the  economic  effects  of  the  mobility  of 
labor. 

CHAPTER   II 

200.  Why  does  the  value  of  the  product  in  the  market 
afford  no  indication  of  the  relative  share  of  the  con- 
tributories  to  production?    Illustrate. 

201.  How  are  productive  enterprises  classified?  What 
is  the  present  tendency  in  productive  enterprises?  Why! 

202.  What  factors  have  contributed  to  the  growth  of 
large  corporations?  What  are  the  consequences  of  this 
development? 


QUIZ   QtESTIO...S  ^ 

20n.  How  has  the  develoi  nent  „r  i-, 

«  ""  »"y  "»  »■' «:  ,livi,l„lr 


CHAPTER    III 

K.vpWn''"'"'  ""'"  ''""'  ''•'■  •'"''"  "'  «'l'"'itiou.ly. 
ioinla^r"!*  ""  "°™"  "*  '"■  ""■  'l»'rf«l,fc,.  in 

sre^:;i;ri,  "■"■'■ " " '™™" '- "--  - 

pi".  Cr'entr  "'•"•■""  ""^  -'"■•'  "  ■»- 

v„!^'  T*"^  "  "  ""npetent  superintending  class  of  ad- 
antage  to  manual  labor?     Is  it  econoJcally  advan- 
tageous for  a  country  to  extend  public  funds  forJhe 
provision  of  technical  education?  "=>  "t  tne 


464 


KCONOMICS 


216.  What  are  the  characteristics  of  the  labor  market? 
Classify  niaiuial  laborers.  In  nhat  way  is  competition 
in  the  lalM)r  market  mitigated? 

•J  17.  Discuss  tlie  advantages  and  disadvantages 
of  the  establishment  by  trade  unions  of  an  uniform 
wage. 

18.  Discuss  "old  age  pensions." 

. .!).  Why  is  it  (lifHcidt  to  organize  labor  in  trades  in 
whicli  the  reciiiisitc  skill  is  low  if  What  is  the  relation  of 
the  system  of  uniform  wages  to  the  organization  of 
labor? 


CHAPTER    IV 

220.  Discuss  the  question  of  the  mobility  of  labor. 
2*il.  In  what  sense  is  labor  n  ;)erishable  commodity? 
What  are  the  characteristics  of  a  laborer  as  such? 

222.  Is  the  value  of  wages  determined  in  the  same 
manner  as  that  of  other  commodities? 

223.  Distinguish  between  nominal  and  real  wages. 

224.  How  are  wages  determined? 

22.5.  What  is  meant  by  marginal  wage? 

226.  Discu.ss  the  demand  and  supply  prices  of  labor. 

227.  Explain  the  meaning  of  reserve  price  of  labor. 

228.  What  is  meant  by  the  reserve  of  labor? 

229.  AVhat  factors  influence  the  labor  reserve? 

230.  Discuss  minimum  and  maximuni  wages. 

231.  Examine  the  doctrine  that  the  value  of  products 
is  due  to  the  labor  which  is  exercised  upon  them. 

232.  Why  is  distribution  not  based  upon  the  product 

233.  In  what  sense  are  wages  advanced  by  capitalists! 

234.  How  does  voluntary  co-operation  accomplish  the 
same  object  as  capitalism? 


Q'^IZ   QtrKSTIONS  ^. 

Ml 

CHAI'TKU   V 

dinary  dispute  a  W  wa^L''"'"'"  '""'^"  '™'"  ""  '"- 

ea^Js  Si^r  wLt'r'r  ""■^"'"'"^^  '-''- 

dustrial  Workerf  If  the  VVorld.   ""*''  *"  '^  ^'"^  ^"- 

-^;^*^^e:s:^l;r7r^^--f  trade 

Ca^darii^'/tLtL''"'''  ""'■''"'■^'"  °-  '■*''  -iKin  in 

2^4.  Acc'ornlltrrwtro?'"/'''""'"^  ^"^^ 
""ionism  in  America  and  ^k      '"*""««°n«l  trade 

2  •3.  What  i^m  ant  bv  tt     ''"'^"'  '*  '"  ^'"^P- 
"closed  shop"?  ^  *''^  expression  "ope,,  shop." 

th'n  tho?i;:::„f  ^"^^^  -^  ~"  '«  genera,  less 
-n-J- w^erpS'  ^'^'^"-*--  a-  -h.ntary  union 

I      c-i-so  *  ■ 


466  ECONOMICS 

^50.  Examine  the  argument  for  conciliation  and  arbi- 
tration in  labor  disputes. 

251.  Give  an  account  of  the  relation  of  trade  unionism 
and  economic  theory. 

CHAPTER   VI 

252.  Why  did  all  interest  appear  in  the  middle  ages 
to  be  usury?  Account  for  the  idea  that  interest  is  paid 
for  the  use  of  money. 

253.  How  did  the  idea  that  interest  is  the  reward  oi 
saving  arise? 

254.  What  element  of  truth  lies  in  each  of  these  ideas? 

255.  Explain  the  agio  theory  of  interest. 

256.  Analyze  the  constituents  of  the  market  rate  of 

interest. 

257.  Distinguish  between  the  different  compartments 

of  the  money  market. 

258.  Why  is  there  more  competition  in  the  money 
market  than  in  any  other?  Why  is  concentration  of  cap- 
ital indispensable  under  modern  industrial  conditions; 
Give  a  list  of  the  important  local  money  markets 
and  explain  the  reason  for  the  place  of  each  of  them  m 
the  international  market.  Account  for  the  relatively 
high  rate  of  interest  in  new  countries. 

259.  What  is  the  function  of  capital? 

260.  Why  is  the  accumulation  of  capital  indispensable 
to  progress?  Account  for  the  chronic  scarcity  of  capital 
in  relation  to  the  demand  for  it.  Illustrate  the  answer, 
using  an  illustration  other  than  railways. 

261.  Why  were  the  American  railways  constructed 
at  a  minimum  of  cost? 

262.  M''hat  was  the  effect  of  American  railway  con- 
struction on  Europe?  Explain  the  expression  "velocity 
of  return  of  capital." 


CHAPTER   VII 


467 


263.  Distinguish  between  the  practice  in  Europe  an.I 
ofknd  '"""  '■^''"-''^*'"^'  ownership  an.I  oeenpaney 

264  Account  for  the  eniergencies  of  rents  in  a  coun- 
try where  obligatory  labor  has  been  in  vogue.  Upon 
what  valuable  consideration  was  the  pavu.ent  of  such 
rents  based?     What  is  non-economie  rentV 

263.  What  were  the  a.lvantages  of  indefeasible  occu- 
pancy of  land?  Account  for  the  commercialization  of 
land. 

266.  Discuss  the  benefits  and  drawbacks  of  farming 
under  conditions  of  tenancy. 

267.  On  what  grounds,  does  the  policv  of  speedy 
alienation  of  public  lands  commend  itself  to  the  govern- 
ments of  new  countries? 

268.  What  is  the  result  of  the  increase  in  land  prices? 

269.  What  are  the  social  results  of  the  growth  of  a 
landowning  and  non-cultivating  class? 

270.  Show  the  connection  between  the  commercializa- 
tion of  land  and  the  development  of  the  theory  of  rent. 
Relate  the  doctrine  of  economic  rent  to  the  law'of  dimin- 
ishing returns.  Rent  is  a  "net  product. '  Explain  this 
statement. 

271.  Is  it  a  sufficient  explanation  of  rent  to  say  that  it 
is  a  surplus?    Why? 

272.  Examine  the  theory  of  rent  which  bases  rent 
upon  differential  advantage. 

273.  How  far  may  this  theory  of  rent  be  extended  to 
account  for  rents  other  than  those  for  land? 


468 


ECONOMICS 


■ 


TART    IV:    CONSUMPTION 

CHAPTER   I 

274   Into  what  divisions  may  the  department  of  con- 
sumption be  separated?    Account  for  the  expediency  of 

this  separation. 

275.  How  may  the  demand  of  governments  for  pur- 
poses of  national  consumption  be  divided? 

276.  What  is  the  effect  of  governmental  consumption 
upon  consumption  in  general?  

277  How  do  the  heavy  borrowings  of  government 
and  municipalities  P<Tect  the  general  money  market^ 

278.  What  are  some  of  the  economic  effects  of  pri- 
vate benefactions? 


CHAPTER  II 

279.  Discuss  the  classification  of  personal  consump- 

*'°280.  Illustrate  the  law  of  substitution  as  applied  to 

^°°28l  What  was  the  effect  of  concentration  of  manu- 
facture upon  the  character  of  clothing?  How  has  de- 
mand been  influenced  by  standardization  of  clothing? 

282.  Is  the  mechanic  of  to-day  likely  to  have  mor 
doniestic  comforts  than  Queen  Elizabeth  had  in  her 

^'Isa 'Discuss  the  advantage  and  drawbacks  of  owner- 
ship of  their  house  by  workingmen  from  the  point  ot 
S  of  the  expediency  of  nobility.    Under  what  con- 


QUIZ   QUESTIONS 


4G9 


ditions  were  the  earlier  experiments   in   semi-philan- 
thropic hoiisinjT  sclienies  carried  on  ? 

284.  Account  for  the  disappointment  which  has  at- 
tended many  housing  schemes. 

285.  Why  did  the  employes  of  the  Singer  Sewing 
Machine  Company  in  Glasgow  travel  twelve  miles  daily 
to  their  work  rather  than  live  in  the  houses  provided 
by  the  company? 

286.  What  are  the  chief  reasons  for  the  greater  prev- 
alence of  ownership  by  the  occupants  of  houses  in  Amer- 
ica than  in  1  urope? 

287.  Why  is  competition  in  the  business  of  building 
houses  to  let  them  for  rent  not  active  excepting  after 
the  close  of  a  period  of  industrial  activity?  Why  is  the 
housing  question  most  acute  in  new  countries?  What 
are  the  economical  reasons  against  philanthropic  hous- 
ing? What  would  be  the  economic  effect  of  the  sudden 
enforcement  of  drastic  public  health  laws? 

288.  Account  for  the  growth  of  the  miscellaneous  ex- 
penditure of  all  classes. 

289.  Give  an  account  of  the  constituents  of  consump- 
tion and  account  for  their  relative  proportions. 

290.  Explain  the  different  senses  in  which  the  ex- 
pression "cost  of  living"  may  be  used.  What  are 
some  of  the  effects  of  an  advance  in  the  price  of 
wheat? 

291.  Do  high  prices  always  mean-  a  low  standard  of 
comfort  and  do  low  prices  necessarily  mean  a  high  stand- 
ard of  comfort? 

292.  What  commodities  have  been  subject  to  the  most 
important  advances  between  1890  and  1909? 

293.  What  are  the  reasons  for  the  appearance  of  the 
])roducts  of  the  extractive  industries  among  the  more 
important  commodities  which  have  increased  in  price 


470 


ECONOMICS 


during  the  last  twenty  years?  Show  how  the  sharpness 
of  the  advance  of  prices  disturbs  the  economic  equilib- 
rium. 

294.  Discuss  the  relation  of  the  question  of  the  trusts 
to  the  question  of  the  cost  of  living.  Illustrate  the 
danger  of  the  adoption  of  artificial  means  of  checking 
advances  of  price.  Illustrate  the  connection  between 
movements  in  the  standard  of  comfort  and  movements 
in  prices. 


CHAPTER    III 


295.  Distinguish  diflferont  kinds  of  national  resources 
in  respect  to  the  uses  of  which  they  are  susceptible. 

206.  What  are  the  reasons  for  the  indifference  to  the 
rate  of  consumption  of  natural  resources  in  the  United 
States  and  Canada  in  the  earlier  states  of  exploitation? 

297.  Why  is  rapid  exploitation  of  natural  resources 
necessary  in  new  countries? 

298.  Account  for  the  rapid  growth  of  organized  life 
in  new  countries.  Why  must  the  people  of  new  coun- 
tries borrow  largely?  'Why  must  the  people  of  the 
United  States  and  Canada  produce  immediate  returns? 

299.  Discuss  the  limits  of  legislative  restriction  upon 
exploitation. 

300.  Why  is  the  community  interested  in  the  pro- 
longation of  the  lives  of  the  persons  which  compose  it? 

301.  Describe  some  of  the  reactions  of  consumption 
upon  production. 

302.  How  does  distribution  react  upon  consumption? 

303.  Do  price  movements  affect  consumption? 


QUIZ   QLESTluNS 


471 


CHAPTER  I 

,      ^  propaganda  for  protection  ?    uiri,™*  • 
reciprocal  ta/iff?  l'"ie<-nonf     What  is  a 

CHAPTER   II 

"fX^tl^ltdt  "r  P^^^"^^'''^  -'^^  the 
system?  '^"'''^  *'^'*"  ""'J^'"  the  domestic 

■^tate  regulation  of  industry^  ^''g^'nents  for 

"y    ne  state  or  by  the  municipality. 


472 


ECONOMICS 


813.  What  is  the  reason  of  the  state  regulation  of  rail- 
ways, banks  and  similar  enterprises? 

816.  What  is  the  relation  between  the  government  and 
the  banks  in  Canada? 

817.  What  are  some  of  the  implications  of  govern- 
mental regulation  ? 

318.  What  are  the  disadvantages  of  government  con- 
trol? 

319.  How  are  the  railways  regulated  in  Canada?  In 
the  United  States?    In  England? 

320.  On  what  grounds  may  the  reduction  of  railway 
rates  in  general  by  railroad  commissions  be  regarded  at 
least  doubtful? 

821.  Define  a  "Trust." 

822.  Illustrate  the  above  answer  by  a  brief  account 
of  the  history  of  a  trust  other  than  the  Standard  Oil 
Company. 

323.  Account  for  the  furore  against  the  trusts  which 
exists  in  the  United  States. 

324.  Indicate  the  difficulties  of  regulating  trusts. 

325.  Describe  the  usual  process  of  the  formation  of  a 
trust. 

326.  Account  for  the  practice  of  "stock  watering." 

327.  Examine  the  conclusion  of  the  Industrial  Com- 
mission respecting  the  influence  of  trusts  upon  prices. 

328.  What  light  does  economic  history  throw  upon 
state  administration  of  public  lands? 

329.  Why  are  liberal  land  grants  expedient  in  new 
countries?  Account  for  the  large  land  grants  to  rail- 
ways in  the  United  States  and  Canada. 

330.  Why  must  unoccupied  areas  be  colonized  as  rap- 
idly as  possible?     What  difficulties  lie  in  the  way  o 
resumption  by  the  state  of  the  public  lands?    Would  th 


QUIZ   Ot'KSTIONS 

47s 

t-naf  dS C:^^^^  "-  increase  of  tl.e  na- 

.833.  Ho.  far  is  the  """"I  T™  ''^  ''"'"'^"'^ 

^•ith  collectivism?    AVhat  effl  "  *'""''*  '^""'^''^^-'t 

merce  and  upon  the  movement  ?""  I"**^™"*'"""]  co„.- 
<luced  by  a  coUectiv^rc  f  °^  '"P'^"'  """'J  ''e  pro- 
only?  '°"^'=*"«t  ^^•^t'^'n  adopted  by  one  na  i", 


CHAPTER    III 

-:!^t:t;^^-t-«'epnhliere.m.e. 

^^f:?ss;^:er---^^^^ 

adS" •^o^tr^itCt'i"'  "'  "'f'''  ''-"W-  t" 
--e  of  the  economireffS "f  T'T"*^-  ^"'^''-''^ 
of  .oney  by  Canada  f^^^^^^"^^  ''—in, 

hiSyp^fe'ct::,!::::  e^tar'r.  '"""^*"'-  - 

•^ept  by  "dumping"  arul  riu     ^     r"'*"'^''  ^°"'^'  «■-- 
raw  materials  or  pttia;Zn,frr  "'^P*"-*  ^'"'er 


ii- 


474 


ECONOMICS 


pie  of  the  United  States  and  Canada  to  impose  heavy 
taxes  upon  land. 

840.  Indicate  the  changes  whicli  have  taken  place  in 
the  doctrine  of  the  functions  of  the  state.  How  does 
the  state  endeavor  to  equalize  wealth  ? 

841.  Give  an  outline  of  the  theory  of  taxation.  Wh.it 
is  the  relation  of  the  doctrine  of  the  absolute  sovereignty 
of  the  state  to  the  theory  of  taxation? 

842.  Who  pays  the  taxes? 

343.  From  what  source  is  a  tax  upon  unused  land 
paid? 

344.  Who  must  shoulder  the  burden  of  taxation  when 
manufacturers  are  operating  their  industries  without  a 
profit? 


CHAPTER   IV 


843.  Discriminate  the  different  classes  of  public  ex- 
penditure.   Why  is  public  expenditure  increasing? 

346.  Describe  the  procedure  connected  vfith  the  intro- 
duction of  the  Budget  in  the  British  and  Canadian  Par- 
liaments. Contrast  the  English  and  French  systems  of 
keeping  public  accounts. 

347.  Account  for  the  growth  of  national  debts. 

348.  What  is  the  connection  between  the  development 
of  the  money  market  and  the  growth  of  government 
loans? 

849.  Describe  the  method  ir  which  banking  is  facili- 
tated by  the  existence  of  government  securities. 

330.  Explain  the  various  methods  which  are  adopted 
in  issuing  government  loans. 

351.  Account  for  the  fall  in  the  price  of  the  securities  ] 
of  a  stable  government. 


Ql'155   QfESTIONS  47^ 

largely  iiel.l  ?  "  "^  """^  Caimdian  bonds 

354.  Describe  the  terminable  annuity  system 

tw,^s;s:r"''°^^"--'^-^-'^emp- 

the  diW^rSarisH  ';beT7  "'■^'^^'^  "'"'-^^ 
-vices  by  joint  stock  rmpanl'sr™"""  ''  *'"^^ 


CHAPTER   V 

the  DominrorS™e?tTnd  onh"p^'''  ^""'^"^  "^ 
ernment.  "^  °^  ^'^^  Provmcia)  Gov- 

succession  duties?  i'"'""""*  and  the  imposition  of 


470 


FX'ONOMICS 


804.  Account  for  tlie  lieavy  expenditure  of  municipal- 
ities ill  Canada  and  tlie  United  States. 

363.  Why  are  municipal  debts  increasing  so  rapidly 
in  America^ 

360.  Discuss  the  reactions  of  the  taxation  of  land  and 
the  exclusion  of  improvements. 

807.  Describe  briefly  the  course  of  municipal  history. 

308.  How  does  the  Local  CJovernment  Board  aid  in 
financing  municipalities?  What  is  one  of  the  practical 
results  of  this  method  ? 

309.  Account  for  the  growth  of  municipal  enterprise. 

370.  Discuss  the  relative  advantages  of  utilizing  the 
profits  from  municipal  enterprises  in  reduction  of  tax- 
ation and  in  the  reduction  of  the  price  of  the  services 
or  in  the  improvement  of  tliem. 

371.  Indicate  some  of  the  difficulties  encountered  by 
municipal  enterprise. 

872.  What  has  been  the  effect  of  the  extension  of  mu- 
nicipal functions? 

373.  What  is  the  status  of  municipal  enterprise  in  the 
United  States? 

374.  In  Canada? 

373.  Describe  the  German  municipal  system. 

876.  Account  for  the  demand  for  commission  govern- 
ment in  American  cities. 

377.  Discuss  the  reactions  of  the  extension  of  munici- 
pal enterpristo. 


CHAPTER   VI 

378.  Account  for  the  leadership  of  England  in  fac- 
tory legislation. 

379.  Discuss  the  expediency  of  a  statutory  fixation  of  I  'lea 


tiVlX   yiESTIONS 


477 


Pensation  for  indusl'-^^S:'/"'  -.„.....  ...... 

it  Z  s?c:rjr  ^^™-  ^•"»-  «"a„ce.i.  M,,v  ,.„. 
pensaiio^:"""^  "'^  ^"«"^''  ^>-^*-  "^  -rk.ne..'.  eo„.. 
hnesT  "^'"^  ""^  ^''^  ^"'■^'^'^  «t«tes  done  aio„,  these 

887.  Examine  the";  tem  of  r^""**°"- 
industrial  accidents  ^      ^  responsibilitv  for 

pent;,™  :;:;.r  it  S'  °" ""  "'^°""  °' "» — 

^m.  i„  „h„  „„„,^  ^  ^^  _^  __^^^^._^^^  ^^^^^  ^^^ 

'■ta  to  l,b„,  e.vcbmge.  e»«rnmenf,  re. 


478 


KCOXOMILS 
CHAPTER   VII 


807.  What  is  the  status  of  insurance  against  unem- 
ployment? 

808.  Define  Socialism.     Trace  its  historj'. 

800.  Account  for  the  rise  of  modern  socialist  ideas. 
DeserilH!  the  changes  in  the  doctrines  of  the  state  which 
are  related  to  the  growth  of  socialism. 

400.  Classify  the  various  socialist  doctrines.  Kxam- 
ine  the  policy  of  "direct  action," 

401.  Discuss  the  derivation  of  the  various  socialist 
doctrines. 

402.  Why  IS  international  socialism  at  once  necessary 
( from  the  socialist  point  of  view )  and  difficult  ?  To  what 
circumstances  may  the  growth  of  syndicalism  be  attrib- 
uted? 

408.  Explain  the  meaning  of  "Class  consciousness." 
Examine  the  policy  of  collectivism  in  the  light  of  the 
discussions  in  the  text  upon  the  economic  aspects  of  the 
state. 


INDEX 


Act, 

Approprlatinn,  SM. 
Bunk,  Cnnnilian,  »a-i\1, 

niami— Alllsnn,  rg-79. 

Canada  and  statn  of  fhe  Union. 
14-13. 

CiMtnnM,  371. 

Emanrlpallon,  RuMln,  «. 

EmploycM-  I.laliili'v,  411-tH. 

Factory,  .138,  3(i». 

Manitoba  (irain,  88. 
Minn,  .138. 

Old-a(tr  Peri.slon.s  227. 
Sherman,  79. 
Trust,  2(i.1. 

Workmen's  Compensation,  4I«^ir 
420.li>l.  ' 

Accident  Compensation, 
Cost,  42J-427, 
Economic  eiTect,  427. 
Employer.,'  Liability' Act,,,  415-H8 
English  system,  420-t2I,  424-437. 
German  system,  417-420. 
Responsibility.  422-425. 
V.  S.  System,  421-422. 
Workmen's    Compensation    Acts 
415-416. 
Advertising,  99-I0O. 
Agio, 

Explained,  270. 
Agriculture, 
As  exploitation,  39. 
Capital  of,  S3-45. 
Commercial,  41-43. 
Compulsorj-,  39-4.3. 
Co-nperntive  irrdit,  6a-66. 
Farm  loans,  M-S9. 

470 


Agriculture  (ro«/(„,rf). 

Farm  mortgages,  60.«2. 

l.alHir  in,  K7. 

Meal  priMluction,  T3-7t. 

Rent  in,  27»-.'H0, 

Scienll(\c,  48- (9. 

Technique  of,  J|. 
Anarchism,  412. 

Arbitration,  .',l3.m  (,«  Wag,,) 
Autumnal  drain,"  174. 


Bakiiln.  412. 
Bank   (see  Credit), 
Balances,  I72.J73. 
R'Kulated  by  state,  34». 
He,er>e„  lSI-183 
Barter, 
Economy,  101-105. 
Primitive,  104-lOS. 
Bargain, 

Effect  on  production,  I.32-I3I 
Bentham.  Jeremr,  4.15. 
Bimetallism,  138^1;l9  (see  Gold) 
Birth-rate, 
necline  In  France,  48. 
Effect  on  consumption,  1 18. 
Bi,,marck, 
Slate  insurance  policy,  437. 


Capital, 

Agricultural  (see  Agricultural). 
Circulating,  21-23. 
Diversion  of,  291-293. 
Fixed,  21-22. 


480 


INDEX 


Capitnl    (Continued). 
Function  of,  :27^-^75. 
Govprnmcnt  expenditure  of,   J89- 

293  (see  Public  Kxpenditure). 
In   long-settled   communities,  319. 
In  new  countries,  333-3ij!5. 
Relation  to  interest,  36fi-26S. 
Requisite   of  production,   201-303. 
Scarcity  of,  375-277. 
Sources  of,  33-33. 
Charity  endowment  and  legislation, 

293. 
Christian  socialists,  HI. 
Clothing, 
Customs  regarding,  297. 
Standardization  of,  298. 
Collectivism,   Ul,  U2. 
Commission  government,  407. 
Communism, 
Doctrine  of,  4H. 
During  production.  345-247. 
Explained,  200-201. 
Spirit  Wrestlers,  201. 
Competition, 
Between  America  anl  Great  Brit- 
ain, 33G. 
Explained,  155-15fi. 
In  labor  market,  325-226. 
In  land  selling,  164-165. 
Of  capital,  271. 
Perfect,  187. 
Protective  tariff,  .^"11-332. 
Result  of  unrestricted  trade,  201- 

206. 
Tending    toward    monopoly    (see 
Monopoly). 
"Complementary  commodities,"   147- 

148. 
Complex  production. 
Defined,  16. 
Functions  in,  23. 
Ownershiji  in,  18. 
Possibilities  of  dispute  in,  200. 
Requisites  of,   17. 
Conciliation,  263-965  (see  Wages). 
Conservation, 
Commissions,  318. 
O^  natural  resources,  317-319. 


Considerant,  486. 
Consumption, 

Classified,  288-389. 
C(tst  of  living,  182-183. 
Distribution,  reacting  upon,  326- 

327. 
National,  289-293. 
Of  human   life  and   energy,   324- 

325. 
Of  natural  resources,  316-317. 
Personal,  294-295,  306-308. 
Proportions    of    constituents    of, 

308. 
Reaction  upon  exchange,  337-328. 
Reaction    upon    production,    325- 
336. 
Corporations, 

Effect  of,  211-212. 
Importance  of,  209-211, 
Reason  for,  25. 
Standard  Oil.  346-348, 
Cost  of  living,  308-315. 
Credit, 
Agricultural  (see  Agriculture)* 
Among  laborers,  231. 
Bank  balances,  172-173. 
Bank  reserves,  181-183. 
Contraction  of,  170,  180. 
Crisis  of  1907,  175-176.  183. 
Expansion  of,  170. 
Fiduciary  currency,  176-180. 
In  new  countries,  322-323. 
International,    173-173,    361-363. 
Crisis  of  1907,  175-176.  183. 
Crop  movements, 
Financing,  71. 
Currency  (see  Money). 
Crisis  of  1907, 175-176,  183. 
Elastic  system,  183. 
Fiduciary,  176-180. 
"Legal  tender,"  172,  182,  185. 


"Dead  point,"  27. 
Demand, 
As  affected    by   Government  cor 
sumption,  291. 


Rxl 


Pac 
F 


pon,  326- 


Iture). 

83. 
180. 
61-363. 


INDEX 


rgy,  334- 

S-317. 

18. 

uents    of, 

,  327-398. 
ion,    33S- 


Diiitributlon, 
Explained,  5,  7,  197. 
Present  system,  199-200. 
Reaction  upon  consumption.  3^8- 

327. 
Relation  to  production,  19. 
Significance  of,  19(;. 

Why  not  based  on  product'  "13 
3U. 
Duty. 
Customs,  186-189. 
Excise,  185-186. 

E 

Efficiency, 

Dependent  upon  food,  296-297. 
Employer, 
Aim,  21S-216. 
Associations,  230-221. 
Double  function,  215. 
Entrepreneur,  23. 
In  I8tli  century,  208. 
Position   in   distribution,  212-213 
Profit,  218-220. 
"Engrosser,"  3*6-347. 
Emancipation  Act,  Russia,  42. 
Exploitation, 
Agricultural,  39-42. 
Bargaining,  99, 
First  stage  in  production,  37. 
Meat  production,  73-74. 
Mining,  75-88. 
Process  of,  38. 
Kxchange,  5-7. 
(See  Barter.) 
(See  Money.) 
As  reacted  upon  by  consumption, 

327-328. 
Markets  (see  Markets). 
Prices  (see  Prices). 
Utility  and  value,  112-121. 
Rxtraction  (see  Exploitation). 


481 


Factory  system. 
Facilitating  industrial  conditions 
338. 

C— I— 31 


"^  rfir  cx'.'.V.nirc,"  l.''2-134. 
"   uir  Trade,"  3S.'i  .06 

i-.'iii>f!,   -"Og. 
Food, 

Diversity  of,  293-296. 

History  of,  295. 

Law  of  substitution,  295. 

Necessity  for,  295. 

Relation  to  work,  296. 
Free  grant. 

Area  of,  51. 
Free  trade. 

Beginning  of,  329. 

In  Great  Britain,  331-3.10. 
Fourier,  436. 


George,  Henry, 

Propaganda    in    California,    i' 
Gold, 

-Amount  in  existence,  115, 

As  money,  108-110. 

".\utuninal   drain,"   171. 

Bimetallism  (see  Binielallism). 

Hoarding,  176,  iai-18t. 

International  credit,  173-171. 

Mining,  75-77. 

Panic  of  1907,  175-176. 

Relation   to  prices,   137-138    171- 

176,  180-181. 
Reserves,  181-183. 
Government, 
Expenditures,  989-293    (see   Con- 
sumption). 
Functions  of,  4. 
Industry,   387-389. 
Industry  and,  329-359. 
Labor  exchanges,  4.10-432. 
Legislation,  337-359. 
Loans,  377-378. 
■l.ocal     (see    Municipal     Govern- 
ment). 
N'oles,  177-179,  181-182. 
Securities,  378-380. 
Grain  Growers'  Association,  70. 


483 


INDEX 


H 

Hanseatic  League,  JIO. 
"Hedging"  (see  Sjwulation). 
Homestead  grant   plan. 

In  Canada,  ^83. 
Housing,  S99-313. 

I 

Immigrants, 
As  exploitative  laborers,  88. 
As  members  of  trade  unions,  254. 
Italian,  In  New  York,  148. 
Immigration, 
Effect  on  population,  148. 
Induced  by  natural  resources,  3^0- 
321. 
Indu.strial, 
Commission  on  trusts,  353. 
Unionism,  265. 

Workers  of  the  World,  252-253. 
Industry, 
P  .'cident  compensation  in  (see  Ac- 
cident  Compensation). 
In  middle  ages,  337. 
Localization,  90-92. 
Nationalization    of,   356-357,    387- 

389. 
Regulated  by  state,  337-359. 
Trade  unionism  (see  Trade  Union- 
ism). 
Interest, 
Current  theory,  268-269. 
Defined,  2i)8-269. 
Early  theories,  267-268. 
History  of.  266-267. 
In  new  countries,  .321-323. 
Market  rate,  269-272. 
Statutory  limitation,  203, 
International  trade. 
Credit  In,  173-174. 
Fiduciary  currency  in,  179. 


-loint  stock   company. 
Conducting  productive  enterprise, 
908-209. 


Joint  stock  company   (Condnued). 
Growth  of,  210. 
Profit  in,  220-221. 
Result  of,  910-211. 


K 


Kropotkin,  Prince,  441. 


Labor, 
Accident   compensation    (see   Ac 

cident  Compensation). 
Bargaining  and,  98-99. 
Coniliinntlons,  247-248   (see  Tradf 

Unionism). 
Determining    rent,    979-280,    285 

286. 
Difficulty  of  transporting,  228. 
Directive,   20. 
Dhislon  of,  15,  20,  93. 
Does  not  determine  value  of  prod 

uct,  242-943. 
Efficiency,  23.3-234. 
Elements  of,  IJ. 
Exchanges,  430-432. 
In  exploitative  industries,  87-88. 
.loint,  18-19. 

Location  of  industry  affected,  9J. 
Manual,  20,  39,  225-296. 
Marginal,  236. 
Mobility  of,  229-230. 
Of  women,  256-957. 
Organlzatlon.s,  228. 
Party,  949. 

Perishable  commodity,   230-231. 
Requisite  of  production,  14,  202. 
Reserves,  237. 
Superintending,  20. 
Supply  and  demand  prices  of,  2:til 

237. 
Support    of,    during    production 

244-945. 
Transportation  affecting,  35. 
Lalssez-faire, 
Defined,  399. 


INDEX 


483 


La.-d, 
As  a  commodity,  279-280. 
Distribution  liy  state,  ai4-:U8. 
Increase  of  prices,  283-281. 
Monopoly  of,  162-163. 
Occupntlon   of,    17    (see   Produc- 
tion). 
Ownership  of    (see  Land  Owner- 

sliip). 
Prices  of,  163-167. 
Requisite  of  production,  202. 
Synonym  for  "nature,"  38. 
Taxation  on,  369-370,  371,  398-399. 
Transportation  affecting,  35. 
Uses  of,  17. 

Value  and  rent,  278-279. 
Land  ownership. 
Advantages  of,  281. 
Commercial,  43-t5,  20.5,  364-365. 
Distinction  attending,  47. 
European,  48-50. 
Landholder,  21,  23,  44-45. 
Medieval,  39-40,  42. 
Modern,  41-42. 
Monopoly  in,  162-16.1. 
National,  353-354. 
Policy  in  U.  S.  and  Canada,  282- 

283. 
Quasi-monopoly  in,  281. 
Small  farmer,  45^6. 
Tribal,  43. 
Lnw, 
Accident  Insurance,  German,  418- 

419. 
Canadian  Homestead,  14. 
Of  diminishing  returns,  26-28,  85- 

86,  100, 
Of  diminishing  utility,  115. 
Of  entail,  47. 
Of  family,  2. 
Of  household,  2. 

Of  increasing  returns,  24-28,  100. 
Of  marginal  disutility,  129. 
Of  marginal  utility,  128-129. 
Of  primogeniture,  47. 
Of   substitution,   120-121,   158-160, 
295. 
"Legal  tenders,"  172,  182,  185. 


M 


Manufacture, 
Division  of  lalror,  93. 
Fini.shed  product,  17-19,  30. 
Instruments  of,  16-17. 
Localization,  90-92. 
Over-production,  93-95. 
Second  stage  in  production,  37. 
Specialization,  89-90. 
.Marginal  producer. 

Taxation,  363. 
Marginal  profit. 
Defined,  187. 
Morltet, 
Kxternal  influences,  130-131. 
For  capital,  270-271. 
For  money,  269-270. 
General  meaning,  126-127. 
Marginal  buyers,  128-129. 
Marginal  dis-utility,  129. 
Marginal  utility,  128-129. 
Origin  of,  122-123. 
Prices,  129-130. 
Protecting  routes,  123. 
Supply  and  demand,  128-129. 
Typical  operation,  124-126. 
Marketing, 
Farm  produce,  67-70. 
Third  stage  in  production,  38,  97. 
Marx,  Karl,  440-444. 
Metayer,  tenancies,  48. 
Middleman,  101-103. 
Migration, 

Permanent,  230. 
Temporary,  229-230. 
Mining, 
Coal,  84-86. 
Copper,  80-81. 
Gold,  75-77. 
Iron,  81-84. 
Labor   in,   87-88. 
Legislation  affecting,  79. 
Nickel,  81. 

Prices  and  camps,  80. 
Silver,  77-79. 
Money, 
Combinations,  271-272. 
Effect  of  quantity,  171. 


484 


INDEX 


y.imn-    (Continued). 

Gold  nnil  silver  as,  109-110. 

Laws,  130-137,  184. 

Miirkct,  3T0. 

Oripiiis  of,  106-lOS. 

l*Hper,  177. 

IVrioclinil  payments,  171-172. 

I'rices,    170-194. 

Prospective  produetio.-,  133-136. 

.Standard    of   value,    110-111,   131- 
137. 
.Monopoly, 

Government.  157-159. 

Law  of  sulistitution,  158-160. 

Prices,  157,  100-161. 
Quasi,  160-161. 
I'nited  .States,  161-162. 
-Montesquieu,  +11. 
Moscow, 

Political  strike  of  1905,  7. 
Municipal  government. 
Administration,  400-402. 
Ca-.adian,  405. 
Commission  form,  407. 
Debts,  397-398,  403-401,  407-409. 
Economic  jispeets,  .390,  407-409. 
English,  40i-103. 
Enterprise,  40J-10.3,  407-409. 
Finance,  394-395. 
Officials,  405-407. 
Prison  labor,  393-.394. 
United  States,  404-405. 

N 
National  dividend. 

Advertising  affecting,  100. 

Bargaining  affecting,  98-99. 

Diminution  of,  8-9. 

Distribution  of,  196. 

Meaning  of,  8. 
Natural  resources. 

Conservation  of,  317-319. 

Plxploitation    of,    319-321. 

Inducing  immigration,  330-321. 

O 

Octrois,   394. 

Old-age  pensions,  228-239,  428-430. 


Over-production, 
Manufacture,  93-94. 
Railways,  95. 
Wheat,  52,  96. 

Owen,  Robert,  434. 


Panic  of  1907,  175-176. 
Paper  money,  177-179. 
Pension  law, 
Canadian,  430. 
History  of,  428-430. 
Old-age,  in  Great  Britain,  227. 
Population, 
Concentration  in  cities,  149-151. 
Prices  affecte<l,   151-152. 
Wages  affected,  238-239. 
Post  Office, 

English,  Canadian,  U.  S.,  290. 
"Preferential  Trade,"  ;«5-336. 
Prices, 

Bimetallism,  138-139. 
Changes  in  consumption,  149. 
Changes  in  production,  143-145. 
Changes  of  fashion,  153-154. 
Climate  affecting,  140-141. 
"Complementary      commodities," 

147-148. 
Consumption  affecting,  328. 
Customary,  134. 
"Fair  exchange,"  132-134. 
Important  increa.scs,  311-313. 
In  1850-1875,  310-311. 
In  1890-1909,  311. 
Land,  283-284. 

Legislation  affecting,  183-195. 
Monopoly,  157,  160-161. 
Movements  of  population,  U9-JW. 
Of  metals,  146-147. 
Political  elections,  142-143. 
Regulation  of  fluctuations,  192. 
Standards  of  comfort,  132-153. 
Supply  and  demand,  labor,  236- 

237. 
Trade  cycles,  193-195. 
Primitive  people. 
Barter  and  money,  104. 
Causes  of  dispute,  18-19. 


IXDKX 


48/; 


I'riinilive  people   (Continued). 
I.ulior  unci  ownership.  197. 
I.'irui  ownership,  13. 
I'ottrrv,  U-18. 
Priviite  luxury. 
In  reintion  to  "national  dividend." 
9-10. 
Privnte  ownership, 
Cause  for  dispute,  18. 
Of  weapons,  18, 
I'rmluetion, 
Changes  in,   1+3-113. 
Complex,  16-18  (sec  Complex  Pro- 
duction). 
Defined,  5-8. 

Dependent  upon  capital,  37?-?*.5. 
Detail,  11. 
Factors  of,  i'Ofl. 
Industries    classilieil,    im-JOH. 
Mass,  11-12. 
Reacted     upon    by    consumption, 

333-3^6. 
.Simple,  13-lfl. 
Stages  of,  37-38. 
Profit, 
Gross,  319. 

How  brought  about,  219-320. 
In  joint  stock  connpany,  330. 
Xet,  319. 

Source  of,  318-319. 
Proudhon,  436,  Ml. 
Public  expenditure, 
Classifled,  372. 
Debts,  370-377,  382-387. 
Funded  loans,  .379-380. 
Government   loans,  ?*77-378. 
Government  securities,  378-379. 
Kecording,  373-376. 

Q 

Quasi-monopoly,  160-161,  233. 
R 

Railwars, 
Construction  in  V.  S.,  373-377. 
Over-production  of,  9,-.. 
Regulation  by  state,  314-346. 


Hate  of  interest. 

Affecting  land  prices,  163-167. 
Haw  material, 
l''.xtraction  cf,  37-39. 
P'ixed  capif.il.  31-33. 
Heiuisitc-  of  production,  14-13 
Rent, 
As  sur|ilus,  38,5-387. 
.Austrian,  48-49. 

General  application  of  term,  387. 
In  new  countries,  303-300. 
"Of  ability,"  387. 
Origin  of,  379-380. 
Relation  to  law  of  diminishing  re- 
turns. 38. 
Russian.  -19. 
Theory  of,  391-385. 
Rent  interest  earnings  fund,  197. 
Retail  trade,  101-103. 
Revenue. 
Classified,  303-363. 
State,  360. 
Revisionists,  443-444, 
Ru.sso-Jaj.anese  War,  8, 
Russo-Turkj.:h  War  of  1876-77,  e. 


Saint-Simon,  435. 
Settlement  in  new  countries. 
Details  of  progres.s,  331-,'i33, 
Kxjiloiting  natural  resources,  3->0- 
331. 
"Shack  town,"  303-304. 
Smith,  Adam, 
T'  'ory  of  labor,  440. 
"Ine  Wealth  of  the  Nation,"  8. 
Socialism, 
Contributors  toward,  433-436,  440- 

444. 
Doctrinev.  4,38-443, 
Origin   and   history  of,  433-137, 
Progress,  437-438. 
S'jfn  .Icance  of,  444-443. 
"Social    dividend"     (see    "Xational 

Dividend"). 
Social    legislation. 
Accident  com|)ensation    (see   Ac- 
cident Compensation). 


486 


INDEX 


Soolnl  Ifjjlslation   (Conliniieil). 

F«rtoiy  Acts,  410-4U. 

Old  age  pensions,  Jil,  4JH- IM. 

I'ncmplojiiient,   lj:l-43t. 

Working  day,  .iU-415. 
Spec-Illation, 

Characterized,  189-190, 

Cornering,  190-192. 

Hedging,   191. 
Spirit  Wrestlers,  201. 
Stock  watering,  3^0-333. 
Strikes, 

Failures,  252. 

Probable  results,  251-252. 
Silver. 

-Amount  existing,  135. 

As  money,  108-110  (see  .Money). 

Dimttttllism,  1.1S-139. 

F.ffect  on  prices,  137-138. 

Mining,  77-79. 
Standard  Oil  Trust,  316-349. 
Superintendent, 

Demands  upon,  223. 

Educat'on,  223-225. 

Function  of,  221-322. 

Salaries,  222-223. 
Supply  and  demand. 

Houses,  304-308. 

Influence  of,  215-217. 

Interest,  269,  271. 

Labor,  236-237,  339. 

Market,  128-129. 
Syndicalism, 

British    trade    unionism    affected, 
249. 

"Direct  action,"  441. 

Industrial  Workers  of  the  World, 
252,  253. 

Method,  not  doctrine,  442. 

Success,  reason  for,  443-444. 


Tariff, 
For  revenue,  333-333. 
General,  185-189. 
Of  Great  Britain,  3,3.3. 
Protective,  331-3,32,  ,335. 


Taxation, 
Canadian  provincial,  391-392. 
In  nnmopoiy,  1R7-1H9. 
In  perfect  competition,  IH7. 
.Municipal,   :I94-:195,   39H-399. 
On  corponitiiuis,  302-393. 
On  income,  360-361,  :«ij-.366. 
Xfttlnnal  c«)nsumptlon,   289. 
Two  theories  of,  36t>-368. 

Thompson,  William,  435,  440. 

Trade, 
Cycles,  193-195. 
Guilds,   203-304. 
Unrestricted,  204, 

Trade  unionism. 
Capitalistic  system,  365. 
"Closed,"  "open"  shop,  356. 
Collective  bargaining,  251-252. 
Congress  in  1889,  248. 
Economic  cifects,  252-253. 
History  of,  247-248. 
In  Canada,  354-355, 
In  Great  Britain,  248-250. 
International.  355-256. 
In  U.  S.,  353-254. 
Purposes  of,  247-248. 
Strikes,  350-251. 

Transportation, 

Factor  of  production,  29. 
Labor  and  capital  affected,  35. 
Land  affected,  35. 
Jlethods  of,  31-.34. 
Opening  new  markets,  34. 
Relation  to  manufacture,  29-31. 
Rents  affected,  35-36 

Trust  (.see  Corporations), 
Act,  263. 
Beef,  314. 
Defined,   160. 

Difficulty   of  dissolving,  343. 
Industrial   Commission,  353. 
National  ownership,  357,  359. 
Objections  to  in  U.  S.,  342-343. 
Kcgulation  of,  by  state,  346-347. 
Standard  Oil,  346-348. 
Sugar,  347. 


INDKX 


487 


Unemplojinfnt,  4.');i-l34. 
L'niform  wage. 

DilBoully  of  nppliciition,  -33H. 

Effect    on    sectlonul    eomiietition 
Si's. 

Implied   hy  collective  bargaining, 

Otlier  effects,  -iKl-Jir. 
L'swry, 
Ajtricultural,  :,H-r,a. 
Oiminution  of,  in. 

W 

Wages 

Cnncilialion  anri  arbitration     '(il- 
3U. 

Demand,  239-240. 


Wages  (CtnUaufd). 
Marginal.  2Ho. 

Mininium  and  maximum,  IM-lu. 
Mobility  nf  labor,  -I'M. 
Nomhinl  and  real,  2*.U-2;W. 
Population   affecting.  338-3;»), 
Productivity    of    labor    affecting, 

l-niform,    2.'(i..'«    (see    l-niform 
Wage). 

Working  day,  -US. 
Watt.  .lantes,  30i. 
Wholesale  trade,  101-103. 
Wheat. 

Cultivation  of,  4!)-5I. 

From   1790-1810,  45-41!. 

JIarkct.   73. 

Over-production  of.  :,3,  96. 

Specialist  farmer,  .53. 

Speculation  in,  190. 


f 


